The Top 4 Real Estate Investment Strategies
If you're new to real estate investing, then you know it can be daunting to look at all the different real estate investment strategies. Even for experienced investors, it takes them a lot of time researching, learning, and practicing all the ways one can invest in real estate.
What most new real estate investors want to know is: what are the best real estate investment strategies out there?
We are here to answer that question for you.
The top 4 real estate investment strategies are:
The Buy and Hold Strategy
The Fix-and-Flip Strategy
The Wholesaling Strategy
The House Hacking Strategy
1. Buy and Hold
Let's start with the most common real estate investment strategy: Buy and Hold.
What is the Buy and Hold Strategy?
The buy and hold investment strategy is often referred to as traditional real estate investing. This strategy is when you purchase a property with the intent to rent it out for many years. Buy and hold real estate allows you the potential to benefit from both appreciation in the property’s value over time and monthly cashflow, in the form of rental income.
Appreciation is the long-term benefit of holding a property for many years. According to Zillow, real estate typically appreciates nationally at an average annual rate between 3 and 5 percent.
Monthly cashflow is the short-term benefit for buying the property and renting it out to tenants. Your monthly cashflow is the portion of the rent leftover after the expenses such as reserves, property taxes, and homeowner’s insurance.
It is important to understand that appreciation and cashflow are not always guaranteed benefits for all properties. Therefore, it is extremely important to conduct an accurate analysis of a potential property to give yourself the best chance for appreciation and cashflow after all expenses.
2. Fix-and-Flip
The second real estate investment strategy on our list is the Fix-and Flip, also known as House Flipping.
What is the Fix-and-Flip Strategy?
The fix-and-flip investment strategy can be best described in 3 steps:
Buying a distressed property at a discount.
Renovating the distressed property back to a good condition.
Selling the property at its new state for a profit.
Using this strategy can be a great way to generate some serious cash by adding value to the property through renovations. However, the fix-and-flip strategy only generates short-term benefits since all the profits are made once the property is sold.
Unlike the buy and hold strategy, this strategy does not deal with tenants or renting a property out. So if you are an investor who doesn't want to deal with property management, this may be the strategy for you.
The biggest drawback to this strategy is the time it takes to complete the property's renovation process. The process could take several months or longer in the case of a delay. In the meantime, the investor would be responsible for expenses until the renovations are complete and the property is sold.
3. Wholesaling
Wholesaling is the third real estate investment strategy on our list. The best thing about wholesaling is that many investors can do it with NO MONEY.
What is the Wholesaling Strategy?
The wholesaling strategy can be best described in 3 steps:
Finding a property for sale below market value.
Placing that property under a contract.
Finding a buyer.
The wholesaling strategy is very similar to the fix-and-flip strategy, with some slight differences:
You don't own the property at any point in time during the process.
Once you find a property for sale below market value, you will obtain a contract giving you the rights to sell it. Instead of buying the property yourself, you will find a buyer who will be willing to pay for the property and pay you a fee for bringing them a deal.
You don't have to deal with any renovations.
There is no need to worry about increasing the property's value because, in most cases, the buyer you find will be willing to complete renovations using the fix-and-flip strategy. Typically as a wholesaler, you act as the middle-man between a potential seller and a potential buyer/investor looking for a deal.
You don't need any money to start.
Since you are not buying an investment property, there is no money required.
4. House Hacking
House Hacking is the fourth and final investing strategy. If you want to live for free or pretty close to free, you will probably be interested in house hacking!
What is the House Hacking Strategy?
House hacking is a strategy in which the property owner rents out a portion of their primary residence to generate rental income to offset the cost of their mortgage and other expenses within the property.
This strategy is typically done with a multi-family unit but can also be done in a single-family home by renting out extra rooms.
The house hacking strategy has the same potential benefits of appreciation and monthly cashflow as the buy and hold strategy.
Since everyone needs a place to live, house hacking gives beginners the opportunity to obtain a primary residence and their first investment property, all in ONE.
Which Real Estate Investment Strategy is Right for You?
So which strategy or strategies are you most excited about when you think about starting your real estate investing journey?
1. Buy and Hold
2. Fix-and-Flip
3. Wholesaling
4. House Hacking
If you would like to learn more about these 4 real estate investment strategies and others—head over to the Zelite app!