There are several different strategies in real estate investing. The best one to use actually depends on your resources, and what you are looking to accomplish.
- Buy & Hold – This is very simple. You purchase a property, and rent it out. You can buy single family or multi-family homes. They can be long-term rentals, to short term Airbnb rentals. They could also be commercial or retail buildings. Typically the banks are looking for 25% down payment on these purchases, and this will give you your best terms on the loan. However there are other finance strategies to acquire these properties, which I discuss in other blog posts. This is a stable, long term growth strategy, and produces stable income and equity growth. You also realize incredible tax benefits on the depreciation. The only big drawback is that your equity and down payment are tied up in the home until you sell.
- Flips – Flipping is a good way to make quick money. This comes in many forms, from a “Lipstick Flip”, requiring only cosmetic improvements, to a major rehab that fixes dated and dysfunctional features; and, then reselling it. It provides the benefit of getting all your money back quickly. It is a higher risk, because you are more at the mercy of the market when you go to sell. You also have the cost of sale and taxes to factor in to your returns.
- REITs – This is passive investing in the real estate market. Large numbers of investors put their money in a fund so that the amount becomes big enough to purchase properties.
- Wholesaling – this is similar to flipping, but basically only involves finding a buyer for a seller and taking a percentage off the sale. The advantage is that it requires no cash from you, just a lot of leg work.
- Lending – You can provide private lending to other investors, who do not have the cash or borrowing ability to purchase the home on their own. You can place a lien on the home, just like a bank, to protect your investment. You always want to evaluate why they cannot get traditional financing, and do your due diligence.
- BRRRR – This is the blended strategy I personally use. Buy, Renovate, Rent, Refinance, and Repeat. I buy distressed properties that I can improve in value for added equity, rent them out for positive cash-flow, then refinance the property to get my equity back and start all over. This allows me to keep my income on the property, as my tenants pay down my mortgage. I also keep my depreciation tax benefits and pay no capital gains tax, while getting my down payment back to do it all again.