JAN 03, 2023
Let's say you've made up your mind about investing in real estate, but now you're not sure where to even start. You're not alone! Most first time investors end up with more questions than answers: that's how everyone starts. Below are the top 5 investing strategies popular among newcomers and seasoned investors alike.
For a lot of first time investors, investing in real estate has a high-cost barrier to entry that discourages many before they start. However, house-hacking is a great strategy for first timers because it allows them to not only buy real estate as an investment, but also a primary residence. The way it works is you purchase a multifamily home (between 2 - 4 units), live in one of the units, and rent out the others. The overall strategy being that now you're not only building equity as a homeowner, but your tenants are paying for your mortgage (and then some).
Buy, Rehab, Rent, Refinance, Repeat (BRRRR). It sounds almost self explanatory, but this methodology allows investors to purchase a distressed property to fix up, rent out, and then refinance their original mortgage for a higher value since the property is now worth more. Keep in mind though, it's recommended for investors that have already done a deal or two and have a network built out because the BRRRR methodology requires more connections with short term & long term lenders. This is because most distressed properties can only be bought with short term hard money loans, and have to be refinanced into a conventional mortgage within a short period of time.
Out of all the different investment strategies, this is by far the simplest and most passive. Once you decide what return target you want to focus on (cashflow, appreciation, equity, etc.), you can narrow down your search criteria by: deciding on budget, choosing your market, and looking at properties. Although this strategy involves the least amount of upfront work, it typically costs more since you're purchasing turnkey properties and holding them for a longer time period.
The house flipping strategy is by far one of the most well known methods of real estate investing, made popular with a lot of media attention and TV shows. Although this strategy can yield a very high return, it's also one of the riskiest investment methods. It involves buying a distressed property (with cash or hard money) and renovating it in order to sell it to retail buyers within 6 months. This strategy is recommended mainly for investors that have either done other deals in the past, or grown up around other people that have been in the real estate trade because it requires a high level of risk tolerance.
Wholesaling is by far the lowest hanging fruit in the whole list of investing strategies, because it involves no up front capital needed (unless you decide to spend on marketing). Unlike house-flipping, wholesaling involves contract-fipping. You find a property that you get "under contract" for less than the market value of the home, and then "assign" the contract to an end buyer who pays you higher than what you put the property under contract for. In this case, you would net the difference between your contract price, and the price the end buyer pays.
This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.