As every real estate investor knows, there is no foolproof method to making money in the market. Discover six fantastic approaches to investing that you can tailor to your needs and objectives at different times in your financial life.
While researching real estate investments online, through social media, or from other investors, you may find conflicting advice. Although some of these resources may present themselves as the definitive authority, the truth is that there are numerous viable approaches to real estate investment. There is no one optimum strategy that applies to all property managers. You should tailor your real estate investment plan to your specific needs, goals, and circumstances.
In addition, your investment approach can and should evolve as your circumstances shift. The key to rental property success is not a single investment approach, but rather your accumulated set of abilities, your arsenal of techniques, and your flexibility to switch between them as needed. Here are six effective methods you can apply in your real estate investing career:
1. House Hacking
The term “house hacking” refers to the common practice of purchasing a home, dividing it in half, and then renting out the second unit. The money you get from rent might be used to lower your mortgage payment. Because of the clean separation, it provides between your space and your tenants, this tactic is ideal for duplexes and other multiplexes. However, some investors additionally rent out a portion of their SFH, such as a basement or a bedroom.
For a variety of reasons, “house hacking” has become a popular method of making money in the real estate market. One major benefit is that it helps novice landlords ease into the business. Especially if you figure out how to use property management software to oversee your rented flat or room. In the early stages of a company’s existence, it is crucial to keep meticulous financial records. Because you will be occupying the space, house hacking also makes it possible to qualify for a residential mortgage. The end goal of this plan is to facilitate your departure and the property’s transformation into a genuine rental.
2. Big Fat Rip-off
Brandon Turner of Bigger Pockets popularised the BRRRR investment technique. The acronym BR refers to the following steps in the real estate cycle:
- Get a discount on a real estate purchase.
- Rehabilitate means to renovate to increase the worth of a property.
- The mortgage can be paid off by collecting rent from tenants.
- Get a new appraisal for the property and use a cash-out refinance to get a better loan.
- You should invest the money you made back into more real estate.
- The goal of BRRRR is to profit from an asset that would otherwise be passed over because of its low perceived value or lack of potential.
Find properties that have good financial potential but still need improvement to implement the BR strategy. Wood flooring, additional bedrooms, and updated kitchens and bathrooms are just a few examples of the types of value-adding renovations you should prioritise. These renovations will increase your home’s value, which will boost your appraisal and provide you access to additional capital.
3. Making Money Through Wholesaling and Driving
Many wealthy people use the wholesale market to make a profit on bargains. The goal of this tactic is to profit from the difference between the asking price and the final sales price of a piece of real estate by acting as a middleman between the buyer and the seller.
You need to know which homes are available right now for this tactic to work. Popular listing sites, the MLS, and the “driving for dollars” tactic are all viable options. Finding potentially good real estate requires physically exploring different areas.
Selling wholesale might be challenging for those who lack experience in marketing and sales. Wholesale may not be for you if you lack this skill set and have no interest in developing it.
4. Changing Hands on Real Estate
Buying, remodelling, and reselling (or “flipping”) a home is similar to BR since it involves these three steps. Flipping a house, on the other hand, involves selling it rather than renting it out.
Successful house flipping requires a rapid pace of renovation and sale. More of your mortgage will have to be paid off the longer you wait to sell. House flipping, like Buy, Hold, Rent, Refinance, and Repeat, is most profitable when the purchase price is significantly lower than the current market value. In this way, renovations can exponentially raise the value of a house and facilitate rapid sales.
Selling the property so rapidly will result in greater capital gains taxes, which is a drawback of this method. You’ll need a crew of builders and renovators, as well as inexpensive yet high-quality materials, to pull off a successful house flip.
5. Syndicated Works
Investing in real estate via a syndicate is typically seen as a less hands-on approach. Nonetheless, success in syndication can be attained via deliberate decision-making and vigilant monitoring of the procedure. The premise of the syndication approach is to acquire real estate by pooling resources with other accredited investors.
To summarise, you pay syndicators to find and manage most transactions, and in exchange, you share in the profits. Public or private syndication is possible. Unlike private syndication, which is handled manually by investors, public syndication is typically made operational through a syndication platform.
Accredited and non-accredited investors equally can participate in crowdfunding because it is a form of syndicated investment. If you use the crowdfunding route, you can get backers from a wider variety of sources. In addition, you’ll only need to put up a relatively little amount of money to get started (usually between $50 to $1,000) compared to what would be necessary in a more conventional syndication. Be selective in your choice of syndication partners if you decide to go that route. Even if you didn’t put as much money into your assets at the outset, you still want to make sure they’re in safe hands.
The live-in-then-rent method is essentially a spin on the classic house-flipping business model. Your property is essentially a single-family home (typically) that you occupied before converting it into a rental. The primary distinction between live-in-then-rent and house hacking is that in the former, you reside in the home before renting it out. Instead, there are two distinct stages here. If you want to invest in real estate on a tight budget but don’t want to live next door to your tenants, live-in-then-rent is a terrific option. The sheer variety of real estate investment opportunities can make it feel difficult to settle on a single strategy. You may grow your real estate enterprise, though, if you tailor your investment approach to your unique objectives.