Best Ways to Start Real Estate Investing
Property investing does not have to be complicated. For new real estate investors, choosing the right strategy can lead to success faster. There are many strategies to enter the real estate market, but some are easier than others. This article breaks down the easiest real estate investing strategies that can help you generate passive income.
Wholesaling Real Estate
Real estate wholesaling is considered an ideal way for those starting out to break into the market with minimal capital. The idea is easy to grasp: find motivated sellers looking to sell their homes below market value, secure a contract, and then sell the contract to a real estate investor for a profit.
For example, you might find a distressed property and agree on a purchase agreement with the seller for a lower price. Then, flip this agreement to a cash buyer for a profit. The difference is your profit.
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2. House Hacking
House hacking is another method for beginner investors with lower risk. The main premise is to purchase a duplex, triplex, or fourplex property, live in one unit, and rent out the extra space. This gives the homeowner to offset their mortgage payments while building wealth.
For example, if you acquire a duplex, you can live in one half and use the second side to a tenant, covering your mortgage. This minimizes your monthly expenses while allowing you to gain real estate value.
Owning Rental Real Estate
Owning rental properties requires buying a property and keeping it for long-term appreciation. This approach is ideal for those looking for passive income and property appreciation. By allowing tenants to occupy the property, investors receive regular income while waiting for the property’s value appreciate over time.
To illustrate, you could buy a condo, rent it out, and retain it for a long-term period. During this time, rent from tenants offsets the mortgage, while market value appreciates. This strategy generates equity without demanding constant oversight from the investor.
4. The BRRRR Strategy
The BRRRR process involves buying a below-market property, rehabbing it, leasing it, taking out equity, and then starting again. This strategy is perfect for investors looking to acquire multiple properties quickly. By using the same funds, owners can expand their portfolios without needing fresh investment funds.
For example, purchase a property in need of repairs, rehab it to make it rentable, lease it, and then refinance to use for another purchase. This cycle scales until the investor acquires a diverse range of investments.
5. Real Estate Syndications
Real estate syndications enable those without time to manage properties to own high-value properties. The syndication approach involves combining funds from multiple investors to purchase commercial properties that is unaffordable for a single investor.
This strategy works well for passive investors. By working with experienced syndicators, one can become involved in large-scale real estate without assuming active roles.
Real estate syndications also offer several benefits to syndicate partners, including tax advantages. Unlike being a landlord, syndication partners split the risks and returns as opposed to managing tenants. This approach reduces personal risk while allowing for large-scale investments.
REITs for Real Estate Investing
REITs provide a simple method for new investors to put their money in real estate without owning physical properties. A REIT pools together the funds of multiple participants to buy profitable properties, including shopping centers and hospitality assets.
Investing in Real Estate Investment Trusts is similar to buying shares on the stock market. Individuals buy stocks in the REIT, earn dividends based on the performance of the underlying properties, and gain the appreciation of the REIT as it grows. These investment vehicles offers easy exit options unlike direct real estate investments, which makes it an ideal choice for people with limited capital.
For example, one might invest in a public REIT, earn monthly distributions, and enjoy portfolio gains without dealing with tenants, repairs, and property issues. This strategy makes it easy for individuals to gain exposure to real estate markets while avoiding complexities of direct ownership.
Investing in Short-Term Rentals
Short-term rentals are now common with the rise of platforms like VRBO. This approach requires renting properties on a short-term basis, targeting people seeking temporary housing.
Real estate investors increase their profits by setting short-term premiums, often generating significantly more income than standard tenant arrangements. On the downside, this method demands more active management, including marketing the property, screening guests, and cleaning the unit between guests.
For instance, if you own a condo, one might advertise it on Airbnb and bring in significant cash flow during peak tourist seasons. While returns are appealing, time commitment is also greater as a result of guest management.
8. Fix-and-Flip
House flipping strategies involves buying distressed properties, repairing them, and selling at a higher price. This method has gained popularity due to the appeal of rapid profits. However, this strategy also comes with significant risks, including renovation delays.
Investors need to fully evaluate every property before purchasing a property, calculating project timelines. With proper planning, this method can result in significant returns, but unexpected issues may make an investment into a financial burden.
For example, if you purchase a fixer-upper property for 50% of its market value and put in time and money on improvements, an investor might flip it for significantly more, assuming the timing aligns. This method relies heavily on quick turnarounds, so careful planning cannot be overlooked.
Conclusion
The options above offer a variety of ways for beginners and seasoned investors. From wholesaling for quick profits to buy-and-hold strategies, one can find an option that fits their goals.
Whether you’re looking to start small with simple flips, build passive income streams through the buy-and-hold strategy, or jump into multi-family complexes, being aware of different strategies helps you choose the best investment.
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