If investors build a portfolio of rental properties in geographically diverse regions, it makes them more resilient investors, capable of weathering various different kinds of economic storms.
Just as there are many kinds of real estate assets (commercial real estate, single family rental property, apartment buildings, real estate wholesaling, real estate debt, and others), there are also various kinds of real estate investment strategies. What are the different types and strategies you can invest in real estate market?
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10 Strategies You Can Invest in Real Estate Market
The different strategies you can invest in real estate market that fits an individual investor depends on factors like their risk tolerance, how much control they want to have over the asset, whether they are a beginner real estate investor or an expert, how much cash they have for a down payment, and what level of cash flow they are seeking. There are different strategies through which you can invest in real estate. These strategies are:
1. House hacking
Investment mortgage down payments can be prohibitive for some would-be investors. House hacking is a way for buyers to jumpstart the process of building equity in income-producing properties.
Put simply, house hacking involves buying a property that the investor lives in, and then renting out part of it. This way, they can reduce their mortgage payments with the rental income, and in some cases even make a profit. The house hacker can spend this so-called passive income any way they want — pay down the mortgage, make a large purchase, or even save for another home to expand their portfolio.
One of the major advantages of house hacking is that it gives the investor access to residential mortgages, where interest rates are lower than investment mortgages and the down payment is substantially less.
2. Rental properties
If you have the finance to foot maintenance cost upfront, including covering vacant months, and the patience to manage tenants, then this is for you. Rental property investment is simply a good opportunity for those with renovation skills who are handy with stuff. This is because it would save you a lot of cost on house maintenance. Rental properties follow a process of you owning a property and renting out to tenants
3. Real estate wholesaling
Real estate wholesaling is acting as a middleman between the buyer of a house and the seller, and either collecting a fee for one’s service or collecting the difference between what the seller collects and what the buyer pays.
This often involves what investors call “driving for dollars,” searching neighborhoods for properties the investor thinks they can make money on. Investors also use direct mail marketing campaigns and the Multiple Listing Service (MLS), or remain on the lookout for For Sale By Owner (FSBO) signs.
4. House flipping
If you are experienced enough in the real estate industry, then you can earn a lot from house flipping. House flippers have experience in renovation, marketing, and real estate valuation. The idea is that you find less valuable homes, purchase it at a cheap price, and renovate them before selling them for a profit. House flipping requires capital and the ability to efficiently use it for renovations without running a loss.
In flipping, we recommend it that you should not hold on to the property for too long; tops six months. Expert property flippers don’t focus on investing in improving properties. They rather look for properties with intrinsic value and flip for profit.
5. Rental debt snowballing
This is a technique for paying off debt on multiple rental properties in order to own them free and clear. It was popularized as a way of paying off personal debt by financial author Dave Ramsey, and can be applied to real estate investing as well.
6. Real estate investment groups (REIGs)
if you want to invest in real estate without the stress that comes with managing the property, then REIGs it is. These investment groups are like mutual funds that invest in real estate properties on your behalf. The mode of operation is usually that the group purchases a set of buildings. They then invite investors to purchase specific blocks or apartments through them.
The group manages maintenance and day-to-day running of the building, while investors own the living space. In exchange for their service, the group takes a certain percentage of the living space.
7. Online real estate platforms
Online real estate platforms connect investors with real estate developers. It is essentially an investing platform that you can join and become part of a larger residential deal. These platforms are also known as real estate crowdfunding and require a substantial amount of capital. However, the capital is not up to the amount of solely purchasing a property.
8. Buy utility, rent luxury
BURL relies on the concept of utility cost. A homeowner is missing out if their home would rent for more than they are paying for the mortgage. If they own a relatively luxurious home but could live happily in a more utilitarian home, it may make more sense to live there and turn the more high-end residence into a rental property.
Especially if the owner has lived in the home for an extended period, it’s possible that inflation has driven up the amount they could earn from it as a rental property, since rents tend to rise along with inflation.
9. Real estate investment trusts (REITs)
this is for investors looking to diversify their portfolios without performing a real estate transaction. It is like the stock market for real estate and is even literally sold on major exchanges like conventional stocks. They create a real estate investment trust when a corporation purchases and operates properties with investors’ monies.
Just like regular stocks, REIT also gives out regular dividend payouts to investors. To maintain its status, the REIT must payout up to 90% of its taxable profits as dividends. These investments are also highly liquid. In fact, they are the most liquid of the different real estate investment strategies. This is because they are listed on the stock exchange, and you do not need a realtor to help cash out.
10. Live-in flip
The live-in flip lets an investor live in a fixer-upper while improving it, and sell it later for a considerable, tax-free profit. While the flipper loses money for every month the house is in their hands, the live-in flipper gets the use of the house while they renovate it.
If they can find a house below market value, or one where they can make improvements that increase its value, the live-in flip can be very lucrative, because they can use owner-occupied financing to live in a property they are treating as an investment.
Especially if the investor qualifies for low-interest mortgages, such as Veterans Administration loans, the live-in flip can be a powerful investment strategy.
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