How to Choose a Real Estate Investing Strategy
One of the biggest obstacles to those looking to get into real estate investing is knowing where to start. There are a variety of different strategies you can employ to make money in real estate, and each method comes with its own strengths and weaknesses. Here is a look at some of the most popular strategies and who should consider these methods.
Wholesaling is the act of finding a property for an investor and assigning it to them for a fee. This is done by getting a property under contract for a discounted price, then selling that contract to an investor for a higher price. If all goes well you collect the difference between the two contracts without ever actually closing on the property yourself. Many investors are willing to accept this fee as long as the new price will still net them a decent return. Using a wholesaler saves an investor the time and energy of having to find distressed properties on their own, which can be quite exhaustive. Wholesaling allows interested parties to get into investing without having to purchase or develop a property on their own.
Who should consider wholesaling:
- Those who do not have the credit or income to qualify for financing
- Those who want to gain experience in real estate investing without taking on the responsibilities of rehabbing a property on their own
- Those who have access to a large network of investors who want to make extra income
Fix and Flips
Fix and flips involving buying a distressed or outdated property for a discounted price and rehabbing it so it's comparable to other properties in the neighborhood. There are plenty of motivated sellers out there who are willing to sell their properties for less than what they are actually worth. This could be because they are in financial trouble, going through a divorce or death in the family or they are simply tired of the burdens that come with owning a home. Investors who specialize in fix and flips know how to identify a property that has enough value to rehab for a lower cost than the difference between the original sale price and the after-repair value (ARV).
Who should consider fix and flips:
- Those with money saved who are looking for a realistic way to flip that money
- Those who have solid credit and income who are looking for a hands-on investment strategy
- Those who would prefer a short-term lump sum (six months to one year) over consistent long-term revenue.
Single Family Homes
Buying a single-family home and renting it out to tenants is another good way to get started as an investor. It’s one of the most classic examples of real estate investing and can provide a solid stream of cash flow to the owner. You have to deal with all the responsibilities of being a landlord – which includes things like finding and vetting tenants, making repairs, collecting rent, and paying the appropriate property taxes. But if you build a decent portfolio of rental properties you can make more than enough money to hire professionals to handle these tasks for you while still making a decent profit.
Who should consider single-family homes:
- Those who have built a decent amount of savings and want a sold way to protect their wealth
- Those who have solid income and credit who want an investment strategy that will bring them passive income
- Those who want consistent long-term revenue over a short-term lump sum.
A house hack is when you rent out a portion of your own residence to help offset the cost of your mortgage. You can do this by renting out a spare room or wing of your home. Or you could purchase a duplex or small multi-family building and rent out the empty units. House hacks are great for neutralizing your own real estate costs using investment techniques. This strategy can be useful for reducing your own personal overhead, so you have more disposable income to put toward investing or other business projects.
Who should consider a house hack?
- Anyone looking to reduce their own monthly expenses without taking on another job
- Anyone interested in real estate investing who wants to start with a project they can easily keep an eye on
- Those with extra space in their homes who don’t mind taking in tenants in exchange for passive income
There are many more investment strategies you can explore once you get more experience in the game. But these are the tried and true methods that work for investors who are just starting out. However, just because these strategies can be used by beginners doesn't mean they don’t require effort and knowledge of the local market. You should still do ample research and surround yourself with knowledgeable professionals who understand the business. But these techniques don’t require years of experience to master, just determination and proper guidance.