6 Real Estate Strategies to Use at Various Stages of Your Investing Career
All real estate investors know, there isn't a single strategy for investing. Explore six great strategies to fit your investment goals at various stages of your investing career.
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As a real estate investor, you might encounter varying advice about investing on the internet, social media and from other investors. Some of these sources may claim they know best, but there are many effective strategies for investing in real estate. There isn't a single strategy that is the best approach for every landlord. In fact, your real estate investing strategy should reflect your personal long-term goals, available resources and current circumstances.
Plus, your investing strategy can — and should — change as your needs change. The success of your rentals isn't tied to one investing strategy, but rather the skills you've built, the tactics you've learned and your ability to shift between different strategies when needed.
Below are six great real estate investing strategies you may use at various points in your investing career:
1. House hacking
House hacking is a popular investing strategy wherein you buy a property, live in half and rent the other half out. The rental income you receive helps reduce your monthly mortgage payments on the property.
This strategy works well with duplexes and other multiplexes because you can maintain a clear division between your and your tenant's spaces. However, some investors also rent out a basement or bedroom from their single-family home (SFH).
House hacking is a trendy and widely used investing strategy for several reasons. For one, it's an excellent way to transition to real estate investing for new landlords. This is especially true if you learn to manage your rented unit or bedroom with property management software. Software helps you carefully track your income and expenses while you establish your business. Another benefit of house hacking is that it allows you to get a residential mortgage because you'll be living on the property as well.
In the long run, this strategy's aim is to make it possible for you to move out and transition the property into a full-blown rental.
2. BRRRR deal
BRRRR investing is another effective strategy made popular by Brandon Turner on Bigger Pockets. BRRRR stands for buy, rehab, rent, refinance and repeat:
Buy: Buy a property at below-market value.
Rehab: Renovate and improve the property by adding value.
Rent: Rent out the property to cover the mortgage.
Refinance: Get the property reappraised, then use cash-out refinancing to secure an advantageous mortgage.
Repeat: Use the capital you recovered from the deal to invest in more properties.
With BRRRR, the idea is to capitalize on a property others may have overlooked due to its low face value or apparent lack of potential.
To use the BRRRR strategy, target properties that are sound investments despite needing some work. Focus on improvements that increase value: installing hardwood flooring, adding extra bedrooms or remodeling kitchens and bathrooms. The value added from these improvements will improve your property appraisal and help you secure more funds to invest elsewhere.
3. Wholesaling/driving for dollars
Wholesaling is a strategy many investors use to capitalize on great deals. In this strategy, you find a property that will make a good deal, facilitate a sale between a buyer and seller, and then collect the difference between the seller's price and the amount the buyer pays.
To succeed with this strategy, you need to be informed about which properties are currently on the market. You can use popular listing sites, the Multiple Listing Service (MLS) or a strategy known as "driving for dollars." This involves manually searching neighborhoods for properties that look promising.
One downside of wholesaling is that you need strong marketing and sales skills. If you don't have this skill set and don't want to work to acquire it, wholesaling might not be for you.
4. Flipping properties
Flipping properties is like BRRRR in that you buy, renovate and improve a property. However, with house flipping, the end goal is to sell the property, not rent it out.
House flipping works best when you renovate and flip as quickly as possible. The longer you wait to sell, the more mortgage payments you must make. Like BRRRR, house flipping works best with properties listed at below-market value or those that are easy to improve at low costs. This way, improvements can significantly increase the property's value and lead to quick turnovers.
One downside to this strategy is that you'll have higher capital gains taxes because you sold the property so quickly. You'll also need help to successfully pull off house flipping — specifically, you'll need a team of builders and renovators and access to high-quality materials at a relatively low cost.
Syndication is often considered a more passive real estate investing strategy. However, with careful decision-making and an active eye on the process, syndication can lead to great gains. The main idea with the syndication strategy is to pool your funds with other accredited investors to buy real estate.
Here's how it works: You pay syndicators to locate and manage most deals, then benefit from the profit. Syndication can be public or private. Public syndication is usually operationalized through a syndication marketplace, while private syndication is managed manually by investors.
Crowdfunding is a specific type of syndication investing that involves accredited and non-accredited investors alike who contribute and profit from deals. If you choose the crowdfunding path, you'll work with a broader range of investors. You also won't be expected to contribute as much entry capital as you would with traditional syndication (typically only around $50-$1,000 is required).
If you choose the syndication route, be picky about who you work with. You want to ensure your investments are in good hands, even if you didn't contribute as much initially.
The live-in-then-rent strategy is a modified house-flipping scenario. Essentially, your property is a SFH (usually) that you live in initially and then turn into a rental after you move out. The main difference between live-in-then-rent and house hacking is that you don't live in the property and rent it at the same time. Instead, these are two separate phases.
Live-in-then-rent is a great strategy for people who don't want to live closely with their renters but still want to participate in real estate investing on their budget.
With so many ways to invest in real estate, it may seem challenging to devise a strategy that meets all your needs. However, by catering your investing strategy to your particular goals, you can successfully cultivate your real estate business.