Investing in real estate is generally going to provide a good return. However, there are numerous ways you can devote your money. Here are some of the most popular and successful methods to get you started investing in real estate properly.
Fix and Flip
The fix and flip method is the idea of finding cheap fixer-upper properties, repairing them, and selling them for a profit. It is similar to the flipping shows you see on HGTV. It is perfect if you are starting and are looking for solid savings and investment options. It is not always the easiest, but it will provide you with beautifully finished houses and large chunks of cash.
This is when you buy cheap properties and sell them for a profit. If you are good at negotiating and finding good deals, this is the strategy for you. It also helps if you are good at selling things for a profit. If not, you may want to look at a different strategy.
House hacking means that you live in a house that produces income through a rentable space. This is a great option if you are looking to reduce your housing costs. It is also a good experience because you will learn the landlord’s business while living in a rental. Once you’re ready, you can then move out and make the whole house into a rental.
Live in Then Rent
This strategy has you living in a house you will eventually turn into a rental. In other words, your house will serve as your home and investment later on. Plus, you don’t have to share your space because no one will be living with you. This strategy is a great way to build up a rental portfolio without living with your tenets. Industry experts, such as Will Obeid, recommend this method if you are just starting to invest in real estate.
Live in Flip
This is a strategy where you buy a fixer-upper, move into it, repair it, and sell it for a profit later on. If you follow the IRS rules, you can also avoid paying taxes on your profit up to a certain amount.
BRRRR stands for buy, remodel, rent, refinance, repeat. This is an excellent way to start a rental portfolio without breaking the bank early on. You start by looking for fixer-uppers that you can buy cheaply. You use short term financing to buy the property and fix it, before refinancing with a long term mortgage. If done properly, you can get almost all of your original investment back out of the property. While this is a great way to start building your rental portfolio, it is best to transition to lower risk approaches after a while. You may transition to something like the rental debt snowball.
Short Term Buy and Hold Rentals
This strategy involves buying rental houses that you plan on owning for less than five years. Often, the idea is to add value to the property by remodeling, increasing the rent, and lowering its expenses. This strategy is best used in small apartment buildings. It may also work well in high priced areas.
Long Term Buy and Hold Rentals
This is the strategy of owning rental properties to keep them for a long time. The benefits of this include rental income, tax shelter from depreciation expenses, reimbursement of loans, and price appreciation. This is a very popular strategy and works amazing if you have a house in a prime location. These properties will attract desirable tenets, are easy to manage and will produce a lot of income over time.
The Rental Debt Snowball Plan
This is a great plan if you are looking to build wealth, reduce risk, and create an ongoing stream of income from rental properties. It involves taking all the cash you can find and paying off an entire mortgage with it. You repeat the process until you no longer have mortgages to pay off, just a stream of income from your rental properties.
The All-Cash Rental Plan
Similar to the rental debt snowball plan, the all-cash rental plan allows you to enjoy your income. However, instead of relying on mortgages, you only buy what you can pay for with cash. While this is a hard way to start your real estate investment, it can be a great option down the road.
Real Estate Investment Trusts
Real estate investment trusts are similar to a mutual fund. However, instead of owning pieces of many stocks, you own pieces of many income-producing properties. Unlike the other rental strategies, this is a passive method once you buy into the trust.
These are some of the many paths you can choose from to start your real estate investing. Each of these strategies has positive qualities and negative ones. However, if you try enough of them, you are sure to find a couple that works for you.