15 Real Estate Investment Strategies
Strategies are like plans for how to climb up the mountain in the first place. They are the routes that will take you toward the peak in the fastest and safest way.
These real estate investment strategies will help you generate income or replace your job. However, you must be prepared to invest a business start-up’s upfront time and effort to make them work.
1. Fix-and-Flip
The Fix-and-Flip strategy is the business of finding distressed properties that need some renovation and reselling them at top prices for a profit. This is what they do if you’ve ever watched the flipping shows on HGTV.
You can also check The Book on Flipping Houses and The Book on Estimating Rehab Costs by J. Scott.
2. Wholesaling
Wholesaling is the business of finding good deals on investment properties and then reselling them quickly for a small markup. The crux of this business is being good at marketing and negotiating to find those good deals.
If you’re good at sales, you’ll like wholesaling. But if the idea of sales makes you cringe, I’d look for a different strategy.
Also, you can check a free book, “Ultimate Beginner’s Guide to Real Estate Wholesaling” by Brandon Turner.
Starter Strategies
These are my favorite, safest ways to get started in real estate investing. And in some cases, with a bit of hard work, you can even get started with a small amount of cash.
3. House Hacking
House Hacking means living in a home that produces income, like in a duplex, triplex, fourplex, or house with extra rentable space like a basement, guest house, or spare bedrooms. You can reduce your total housing costs by renting out part of your residence.
House hacking is also a fantastic strategy since you learn the landlord business while living at your rental. And once you are done living there, you can move out and transition the property to a long-term rental.
4. Live-In-Then-Rent
Live-In-Then-Rent is simply living in a house that will eventually become a rental. It means the house must work as your home AND as an investment later. But unlike house hacking, you don’t rent the property while you live there.
Doing this strategy a few times is a great way to build a small portfolio. And you don’t have to live next to your tenants like house hacking.
5. Live-In-Flip
The Live-In Flip is a strategy where you buy and move into a home, fix it up, and wait two years or more to resell it for a profit. If you follow the IRS rules, you don’t pay any taxes on the profit up to $250,000 for an individual or $500,000 for a couple filing jointly.
6. BRRRR Investing
BRRRR stands for Buy-Remodel-Rent-Refinance-Repeat. When done carefully, it’s an excellent way to build a rental portfolio without running out of cash early in your investing career.
Essentially you look for fixer-upper properties that you can buy below their total value. You use short-term cash or financing to buy the property, and then after it’s fixed and stabilized, you refinance with a long-term mortgage. You can pull most of your original capital back out for the next deal if done well.
Wealth Building Strategies
These core wealth-building strategies focus on turning a small nest egg into a large amount of wealth. Real estate investing has long been an ideal vehicle for this purpose.
7. Short-Term Buy and Hold Rentals
This strategy involves buying and holding rental properties for relatively short periods – perhaps 1 to 5 years. Often, this strategy is to force property appreciation (aka add value) by remodeling, raising the rent, decreasing expenses, or all of those.
The short-term buy-and-hold strategy works very well for multi-unit apartment turn-around projects. It also works well for rentals in high-priced, appreciating markets that don’t cash flow.
8. Long-Term Buy and Hold Rentals
This is the strategy of owning real estate to keep it for the long haul. The benefits of this slow and steady (and very successful) strategy include rental income, tax shelter from depreciation expenses, amortization of loans, and price appreciation.
I continue to use this strategy, especially on my properties in the best locations. I like to keep these properties because they attract the best tenants, are the least hassle to manage and tend to appreciate the most over time.
9. The Rental Debt Snowball Plan
The Rental Debt Snowball Plan is one of our favorite strategies to predictably build wealth, reduce risk, and eventually create an ongoing income stream from rental properties. It involves gathering all the cash flow from your current rentals and other sources and then concentrating that cash flow to pay off one mortgage debt at a time.
This strategy’s magic is the speed at which debt payoffs start to snowball (i.e., accelerate) over time. So if you’d like to retire within 10-12 years or less, check out this Rental Debt Snowball case study.
10. The All-Cash Rental Plan
The All-Cash Rental Plan is similar to the Rental Debt Snowball Plan because it snowballs rental income for growth. But instead of using mortgages, you save up cash and buy a rental property without any debt.
Some financial teachers like Dave Ramsey advocate this investing. Of course, starting all-cash investing in a high-priced market would be challenging, but it’s still a great plan in many areas.
11. The Trade-Up Plan
The Rental Trade-Up Plan is perfect for entrepreneurial investors willing to juggle many moving parts. This strategy is a way to quickly build real estate wealth and income by moving from more minor to more significant properties, typically using a technique called a 1031 tax-free exchange.
Debt Strategies
These debt strategies put you into a lender’s profitable (and often passive) role instead of an owner of real estate.
12. Hard Money Lending
Hard money lending is the strategy of making short-term loans to real estate investors who buy rentals or fix-and-flip properties. Usually, the loans involve high-interest rates, points (i.e., upfront fees), and lower loan-to-value ratios.
While the strategy can be very profitable, it also has significant risks. For example, if you must take the properties back at foreclosure, you must ensure you’re protected.
13. Discounted Note Investing
Discounted note investing means creating or buying notes (i.e., real estate debt) at a discount to the note’s total value. Because of this margin of safety, you can create significant returns and reduce your risk.
Discounted Note Investing involves buying notes (typically that delinquent) from other owner-financing sellers or banks. This is a much more advanced strategy, so I recommend studying it carefully before jumping in. You can begin with note investor Dave Van Horn’s book Note Investing.
Passive Strategies
Although some passive strategies below still involve important upfront investment decisions, they require less day-to-day hassles than some prior strategies.
14. Syndications & Crowdfunding
Syndication pools your money with other investors to buy real estate or make loans. It’s a way to invest in any of the abovementioned strategies without putting the deals together yourself. Instead, you invest your money with syndicators or general partners who find and manage deals for you (and they receive a fee).
Crowdfunding is a relatively new form of syndication investing where deal opportunities are marketed through online platforms like Peer Street (this is an affiliate link). Most require you to be accredited, but you can sometimes begin investing with as little as $1,000 to $5,000 per investment.
You can explore some of these syndication deals at theRealEstateCrowdFundingReview.com.
Although we put Syndication/Crowdfunding as a passive real estate investing strategy, this is misleading. Investing in syndications and crowdfunding CAN be very easy and passive, but successful investors with this strategy are still active.
These successful investors actively screen the sponsors, general partners, and deal opportunities before investing. In other words, they say “no” a lot more than they say “yes.” And that’s very different from the passive index or even REIT investing, where you make very few operational decisions.
15. Real Estate Investing Trusts (REITs)
Real estate investment trusts (i.e., REITs) are very similar to mutual funds. But instead of allowing you to own a piece of many stocks or bonds, these REITs will enable you to own a piece of many commercial, income-producing properties.
And unlike most of the other investment strategies above, this strategy truly is passive once you buy it.
By the way, if you want to start investing in REITs, here LBC Capital Income Fund, LLC is.
What are the benefits?
- Monthly dividend payments
The Fund receives income from loan interest paid by the borrowers. Thus, real estate investors get monthly dividends from this cash.
- Potential for considerable long-term accumulation
As an investor, you will have an opportunity to receive dividends or automatically reinvest them.
- Your investment is protected by real estate collateral.
If a borrower defaults on a hard money loan, the Fund Manager forecloses on the property securing the loan. Subsequently, the property ownership belongs to the Fund Manager.
- No market correlation
There is no correlation between the cash flow from the loan payments (or the value of real estate investors) and the stock or bond market performance.
The Funds are steady, and the low-risk return has no direct correlation to stocks, bonds, or commodities. Moreover, the Fund can be a long-term vehicle for money accumulation with monthly dividends reinvested.
- Liquidity
The hard money loans are constantly in high demand by real estate investors and hedge funds. Thus, the Fund can typically honor redemption requests.
If you have any questions, feel free to contact us!
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