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Real Estate Investment Strategies Every Investor Should Know

Many want to invest in real estate because of the industry’s stability and potential. But not everyone has the time or capital to do so. If you’ve been considering getting into the game, you should know a few things that may help you do well.

The real estate business has been on the rise in recent years. Many investors are taking advantage of the opportunity. But finding the right investment opportunities and then coming up with the capital to make those deals happen can be challenging. 

Several investment strategies work in today’s real estate market. But it’s essential to learn all the different approaches, including those with the best chance of success. 

What to Note About Real Estate Investing

Real estate investment is a big deal. This investment often demands time, research, and money. However, not everyone has the knowledge or resources to invest well. 

There’s more to it than just purchasing a house to rent it out. This guide will help you make intelligent decisions about real estate.

— Location 

The most crucial element for real estate investing is location. Residential property valuations heavily depend on the status of the community, green space, scenic vistas, and proximity to amenities. 

When valuing commercial real estate, accessibility to markets, warehouses, transportation hubs, freeways, and tax-exempt regions is crucial.

A crucial factor in choosing a site for a property is to take a medium- to long-term view of how the neighborhood’s projection to change during the investment period. 

You can get in touch with government organizations in charge of zoning and urban planning to learn more about the prospects for the area around the property you are contemplating. Doing this will help you decide whether the long-term planning in the region is fit for your investment strategy. 

— Potential Real Estate Purchases 

Consider this: how long does it take to locate the ideal investment property? After that, become familiar with evaluation methods to decide whether a property is a good fit for your portfolio of investments. 

Usually, potential investors look at the properties in person, examine the surrounding areas, and carefully review the information in Comparative Market Analysis (CMA).

— Be Careful with Leverage 

Even real estate specialists face difficulties from overleveraging. Real estate ventures might fail due to a lack of cash and significant debt commitments.

Although loans are helpful, they could be costly. You make a long-term financial commitment in exchange for service now at the cost of interest. Make sure you are familiar with handling these kinds of loans and that you avoid high debt levels. 

Man Holding Pen and Papers

Take into account the following:

  • Select the mortgage product that most closely matches your circumstances. You should carefully research different types of mortgages because each has a unique risk profile.
  • Look around to find good deals with cheaper interest rates. Know the terms, conditions, and additional fees the mortgage lender may impose.

— Pay Attention to Mortgage 

Understanding the several types of mortgages available, including the associated risks and benefits, is critical to your success in real estate investing. 

To be eligible for an investor mortgage, you must have 20% of the property’s purchase price. Compare mortgages to identify competitive interest rates and exercise caution when considering investment mortgages that require no down payment, adjustable rates, or balloon payments.

— Your Credit Score 

Your lender’s terms depend on your credit score, which also influences your ability to qualify for a mortgage. You can access better terms if your credit score is higher, which might result in significant savings over time.

The finest mortgages are available to you if you have a credit score of over 800. If necessary, find out how to improve your credit score.

Real Estate Strategies Every Investor Needs to Know

Investing in the real estate market is one of the surest ways to build long-term wealth and generate income. But it’s a competitive field, and you need to know what you’re doing to get ahead. 

First, housing values are significantly less erratic than the stock market and have a minor association with real estate. Multiple tax incentives are also available to property owners, which increases the return on investment. 

With that in mind, here are different investment strategies in real estate.

1. Wholesaling 

Finding affordable investment properties is the business of wholesaling, after which you rapidly sell them for a modest profit. The key to this firm is finding good bargains by using your skills in marketing and negotiation.

Wholesaling is not a passive investment strategy, just like flipping houses. Wholesaling, sometimes referred to as selling by assignment of the contract, is one of the options open to an investor with poor credit or limited access to finance. 

Being successful at wholesale investment requires various skills and abilities. Below is a rundown of wholesaling in real estate: 

  • Find a property, work out a deal on the price and other terms, then put together a purchase agreement. 
  • Identify a purchaser for the property. 
  • Sell the property under the conditions of the deal made with the buyer. 
  • The seller receives payment. The buyer is now the owner, and the wholesaler is due a finder’s or assignment fee.

Wholesaling is perfect for you if you’re good at making sales. If you don’t like the idea of making sales, you probably shouldn’t use this investment strategy. 

2. Rental Residences 

House for rent sign board in front

For anyone with DIY renovation skills and the willingness to supervise renters, owning rental homes might be a terrific opportunity. However, this tactic needs a sizable amount of funding to cover the void months and the upfront maintenance fees.

Employing a property management company is crucial for those seeking passive income. A property management business will manage everything for a charge, including security deposits, tenant upkeep, and evictions.

Additionally, knowing what amenities to provide tenants with and how to set rent appropriately with the market is crucial. A home could stay empty if it has insufficient amenities and excessively high rent.

3. Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts invest in a range of real estate assets, including office buildings, single-family homes, and everything in between, including data centers and apartments. REITs fund the running expenses for real estate assets.

A common and highly liquid way to invest in real estate is through REITs, frequently traded on well-known stock exchanges like stocks. 

Investors who desire to put money into real estate without engaging in conventional transactions might choose a real estate investment trust.

Usually an excellent source of consistent income, REITs are mandated to distribute 90% of their profits to shareholders as dividends. In contrast to a traditional corporation, REITs avoid paying corporate income tax doing this. 

Conventional corporations get taxed on their profits and have to determine whether or not to distribute their after-tax gains as dividends.

Finally, every real estate investor must know the difference between equity REITs and mortgage REITs. 

  • Equity REITs are more convenient because they represent building and real estate ownership.

Unlike other investment strategies, REITs are truly passive. They are similar to mutual funds and allow you to own a piece of several bonds or stocks. 

4. BRRRR Investing 

BRRRR is an acronym for Buy, Remodel, Rent, Refinance, Repeat. It’s an excellent method to begin your investment career without incurring losses while building a rental portfolio.

Just like the acronym denotes, this strategy comprises carrying out the following actions: 

  • Purchasing a property below market value 
  • Repairing it
  • Locating tenants
  • Refinancing
  • Repeating the procedure utilizing the money saved from renting and maybe a cash-out refinance.

When purchasing the property with short-term cash or financing, you refinance it with a long-term loan after it has been repaired and stabilized. If done correctly, you can withdraw the majority or the entire amount of your initial investment for the following agreement.

5. Property Flipping 

Flipping properties requires significant real estate appraisal, marketing, and renovation expertise. House flipping involves money and the capacity to make or supervise repairs as necessary.

House renovation and cleaning process

Renovations for a long-term rental differ from flips because a flip involves renovations followed by a sale. The speed of sale of the property serves as a barometer for flipping success.

One such example is the desire of real estate investors to quickly and successfully resell the undervalued homes they purchase.

One drawback of this strategy is that flipped could get into difficult situations if they can’t sell the property quickly. Losses may keep mounting if they don’t retain enough cash in hand to cover the mortgage on a property over the long term.

6. Real Estate Investment Groups (REIGs)

For those who want to own rental property without having to manage it, real estate investment groups (REIGs) are the best option. Groups of private investors pool their resources and expertise to make real estate investments using a variety of tactics.

REIGs are flexible in their choice of organizational forms, membership dues (if any), and levels of participation. However, access to capital and funding is necessary for investing in REIGs.

REIGs are different from REITs because they are not subject to stringent regulations. Rather than being subject to government laws, private contracts regulate REIGs.

The investment group manages the marketing of vacant properties, rent collection, property management, and tenant screening in return for a portion of the monthly rental income. When the properties sell, investors in a Real Estate Investment Group profit from their shares of any equity growth and recurrent rental revenue.

7. House Hacking

House hacking involves living in a house that generates revenue. Homes in this category include duplexes, triplexes, and other properties with additional rentable space (like a guest house, basement, or spare bedrooms).

Another way investors house-hack is by getting a loan from the Federal Housing Administration (FHA) or the Veterans Affairs (VA). You’re good to go with a small down payment to buy a small, multifamily building.

This strategy aims to cut your overall housing expenditure by renting out a portion of your property. Savings from home hacking rentals are used as down payments on rental properties till funds are available.

One disadvantage of investing in rental property is the potential need for a sizable down payment. However, the fact that you can learn about the rental market while residing in your rental makes house hacking an excellent method. 

After living there for a while, you can leave and turn the house into a long-term rental.

8. BURL

Modern house design with trees outside

BURL is an acronym for Buy Utility, Rent Luxury. The guiding principle of this strategy is that investing in real estate with a higher cap rate enables investors to recover their initial costs more rapidly and begin turning a profit.

Paying attention to this rule is more crucial than ever if you want to enhance your lifestyle and net worth. With this strategy, an investor might be able to rent out luxury properties with a modest cap rate, recouping their original investment and starting to turn a profit gradually.

Direct Vs. Indirect Real Estate Investment 

Actual property ownership and management are considered direct real estate investments. Purchasing properties through collective institutions that hold and administer them, such as REITs or crowdfunding, is known as indirect real estate.

Below are some of the implications of direct and indirect real estate investments.

— Direct Real Estate Investment

Direct real estate investment entails purchasing a specific property or a share in one, like a residential or commercial building. Rental revenue, property appreciation, and earnings from businesses that depend on real estate are how to direct real estate investors to profit from their investments.

Increased control via direct investing—your control over direct investment in total. You can choose everything, including the venue, asset class, financing arrangement, financial strategy, exit strategy, and others.

Direct investing has several drawbacks, one of which is that it takes time and effort. 

An additional drawback is financing. Investors frequently require a mortgage or loan to pay for their assets. There is a possibility that you could stop making payments on the loan if the market collapses or if you have trouble locating quality tenants.

— Indirect Real Estate Investment

On the other hand, purchasing shares of a fund or a REIT entails investing in the company’s overall investment strategy, where the fund managers are in charge of all the choices. You would have very little to no influence over any investing decisions.

Yet, it’s easy to get started with indirect investing. Real estate investing requires money and effort. However, investing in REIT is similar to purchasing corporate stock. You open a brokerage account and are prepared to fund it with even a small investment amount.

Additionally, indirect real estate investments provide better liquidity. Typically, you cannot just turn a rental property into its cash equivalent; you must prepare the property for sale, promote it, receive offers, negotiate the terms of those offers, and then enter escrow and close the deal. 

Finally, indirect real estate investments offer greater diversification. You can invest in several REITs with varied investment strategies that cover a wide range of asset classes in numerous geographic regions by purchasing shares of REITs.

Most investors prefer diversification. To optimize their prospective returns, investors with high-risk tolerance can choose to focus all their investments.

The Bottom Line

There are many ways to penetrate the real estate market. And one strategy isn’t strictly better than the rest. Your strategy choice as a real estate investor will depend on your business plans and objectives. 

Real estate investing will always need you to weigh your options and choose what is best for you. When you invest directly or indirectly, you must compromise on issues like liquidity, diversification, simplicity of entry, and control.

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TJ Lokboj

TJ Lokboj is an entrepreneur with a passion for adding value to the real estate investing industry through adopting digital transformation. Some of TJs companies have been featured in Yahoo Finance, Morningstar, Benzinga, and many other publications.

TJ is the managing partner of Holdfolio, a real estate investment firm that leverages a premier crowdfunding platform.

He is also a member of the Forbes real estate council and co-founded SyndicationPro, which is the #1 syndication management SaaS solution in the market today.

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