Real estate investing is one of the simplest ways to build wealth long term. But your return on investment with real estate depends heavily on the strategies you use for short term and long term success.
If retirement income is your goal, you’ll have a much different strategy than if you’re looking for immediate business income. It’s natural for new investors to feel overwhelmed by the vast opportunities in real estate.
Take a look at these 17 real estate investing strategies to help you get started.
1. House flipping
House flipping is a common real estate investing strategy that involves buying a home and quickly reselling it for a profit. In order to profit on the sale, you’ll need to find properties available at a deep discount.
The discount allows you to pay for repairs and still have enough leftover to profit. House flipping is a great real estate investment strategy once you’ve learned how to correctly estimate repair costs.
The entire deal rests on your ability to determine repair costs. Most investors don’t go at this process alone.
With the help of an experienced contractor or investor partner, you can evaluate properties before you buy them to avoid costly mistakes.
2. Assisted living
Baby Boomers are one of the largest demographics in the U.S. By 2030, all Baby Boomers will reach retirement age creating a new demand for specialty housing.
If you’re looking for long term real estate investing strategies, assisted living is a great option. Assisted living facilities come with a wide range of features that present opportunities for creative investors.
It’s possible to convert multifamily residences or apartments into assisted living homes or start with new construction to develop your own project. To earn income, you don’t need to operate the assisted living facility yourself.
Choose to lease the property to a private operator to earn a return on your investment. Commercial tenants rent properties for multiple years at a time. This lowers the amount of risk you assume in your lease since you won’t have to find tenants every year or few months like you would with a residential property.
3. House hacking
One of the most common questions new investors have is how to find the money to invest in real estate. Not everyone has a rich uncle willing to shell out the cash needed for a down payment on an investment property.
Enter house hacking. House hacking is a great way to free up extra cash every month so you can save up for your first real estate investment deal.
House hacking is when you rent out rooms in your house to other people to offset your expenses. The goal is to get as much of your mortgage paid so that you can get a substantial amount saved to cover your investing costs.
Some people house hack seasonally using their extra rooms as short term rentals. Others look for long term tenants who can provide a reliable source of income.
There’s no wrong way to house hack unless you’re not able to cover your mortgage and expenses each month.
4. Bird dog
If you’re looking for real estate investing strategies that require no money to get started, consider ‘bird dogging.’ This is the process of finding legitimate property deals for other investors.
Investors pay you in exchange for any deals they close using the information you find. Expect a few hundred up to a $1,000 in finder’s fees using this method.
Wholesaling involves buying properties at a deep discount before they reach the market. There are many reasons a homeowner might accept a low offer on a home.
One of the most common reasons is financial distress. If someone falls behind on their mortgage payments, the bank initiates a foreclosure. As an investor, you can stop this process by buying the home before the foreclosure process is complete.
It’s in the homeowner’s best interest to avoid letting a foreclosure hit their credit report. Homeowners might also accept a deep discount if they don’t live in the property and no longer want the headache of maintaining it.
Wholesaling is one of the most profitable real estate investing strategies. You can buy off market deals and resell them immediately to other investors as long as you have substantial equity.
If you’re not interested in selling, you can renovate and use the property as a rental. There’s no limit to your options once you own a investment property with a large amount of equity.
6. Slow flip
Another great strategy for investing in real estate is the slow flip. Experienced investors can renovate a home quickly and sell it within a few months for a profit.
These quick flips require access to financing, reliable contractors and a deep understanding of the local real estate market. It’s a costly risk for beginners who might not have even one piece of the puzzle in place.
A slow flip means you buy a property and live in it while you renovate it. This real estate investing strategy is helpful for new investors because it takes away almost all of your risk.
You learn about the renovation process slowly without the pressure to avoid losing money. Slow flips can take anywhere from one to several years depending on your mortgage terms.
Since a slow flip makes the investment your primary residence, you can typically qualify for a conventional mortgage loan which means getting a competitive interest rate and terms.
When most people think of investing in real estate, they think of becoming a landlord. Using the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) method, you marry more than one real estate investing strategy to earn profit from the deal.
The BRRRR method means getting both short term and long term financial rewards from your property deal. Investors find distressed properties they can buy at a discount and renovate.
Next, you secure a tenant for the property to cover your monthly mortgage and maintenance expenses. Then, you refinance to pull out the equity.
Assuming you chose correctly, the home should have substantial equity after being renovated. This gives you the cash you’ll need to find more real estate investments.
8. Partner investing
Who says you have to start out as a real estate investor alone? One practical method to help you get started is to find partners with more experience.
You might have cash, but no idea how to get started. Or, you have a specific niche and free time available but no money for a down payment.
Either situation makes you an attractive partner to an experienced investor. Create a win-win partnership with other investors in your area who want to expand their real estate portfolios.
If you don’t know anyone in your personal network interested in investing, visit your local Real Estate Investor Association (REIA). This organization has chapters nationwide with networking events that encourage investors to share information.
Attend events regularly to start building relationships with other like minded investors.
Are you an accredited investor? If so, consider syndication as a passive investment option.
Syndication works by pooling together money from a group of investors in order to finance large investment projects. It’s basically a form of crowdfunding using money from accredited investors.
The process begins with a syndicator, or sponsor, who raises money for a specific investment opportunity. The syndicator might be an experienced investor or private company.
The syndicate is responsible for doing all the research, underwriting and management of the deal from start to finish. One of the biggest benefits of syndication is that you get to be passive throughout the entire process.
If you choose the right syndication, you’ll earn income with little effort at all. The key is choosing the right syndicator with proven experience managing and discovering great investment opportunities.
10. Hard money lending
It’s possible to invest in real estate without ever owning a property. Consider becoming a hard money lender if you want to diversify your real estate investment portfolio.
This is a great investing strategy for retiring real estate investors. By the time you retire, you already understand how to quickly evaluate a property and what makes a strong investor.
These are two important factors when choosing the best projects to finance. You want an investor with proven experience turning a profit when flipping houses or great property deals brought to you.
If the investor defaults on the loan, you’ve got a strong asset you can sell to get your money back and make a profit in the process.
11. Assumable mortgage
New investors won’t always have access to cash for discounted properties. This presents a catch twenty two when looking to buy real estate below a certain price point.
Banks typically won’t lend below $50,000 to buy properties. This means you have to find an alternative way to buy properties you find below this price point when wholesaling or house flipping.
Consider assuming the mortgage of sellers in distress who owe less than $50,000 on their mortgages. Assumable mortgages allow you to take over the mortgage payments keeping the same terms and interest rates the seller had.
This option means skipping the need for a cash sale while you decide on an exit strategy for the investment.
Multi-family real estate investing is perfect for the residential investor looking to level up. Many investors envision large condo high rises when thinking of multi family real estate.
But small five unit apartment buildings are also multi family real estate. You can scale up or down depending on your risk tolerance with multi family.
Since multi family real estate is a commercial property, banks lend based on the value of the property and not your personal financial profile.
13. Shopping centers
Another great real estate investing opportunity for experienced investors is shopping centers. Shopping centers are a type of commercial investment that offer the chance to get income from retail tenants.
Similar to a residential rental, shopping centers offer space to tenants who pay monthly helping the investor cover their mortgage obligations. The biggest difference between commercial and residential tenants is the length of the lease term.
Some retail tenants can have lease agreements that last up to 30 years. The other difference is that the tenant is responsible for their own maintenance and renovation. This reduces the need to major renovations in order to attract a profit.
14. Vacation rentals
Vacation rentals are viable investment opportunities when you’re looking for seasonal income. In highly sought after areas, the initial cost is typically high, but you’ll enjoy a solid long term asset if your unit is priced correctly.
Vacation rentals appreciate each year in value while providing a monthly income while the unit is rented out. The only downside is that there will always be slow periods where the unit is vacant.
You’re still responsible for the mortgage while the unit is empty.
15. Oil & gas
In certain states, you can invest in oil and gas through real estate. For example, in the state of Texas, there are real estate investors who own the drilling rights on their land.
They lease the land to oil companies looking or new opportunities. This is a high risk investment because the land might not end up having any oil.
You won’t know until the company begins the drilling process.
Real Estate Investment Trusts (REITs) allow you to invest in a product similar to a mutual fund. But instead of stocks and bonds, you’ll invest in a mix of commercial properties that produce income.
REITs are a passive investment which means you don’t need to do any research or legwork to earn an income.
17. 1031 Tax exchange
When you’re looking for ways to trade up your properties, you can use this real estate investing strategy. It’s the process of swapping one real estate property for another.
There are restrictions to what qualifies as a 1031 exchange so make sure you consult with a real estate or tax attorney before assuming you’re getting tax advantages from the deal.
Finding the right real estate investing strategies
When you’re still a new investor, finding the right real estate investing strategies can be tricky. It’s tempting to want to specialize anywhere you think you can make money.
But there are investment options for every budget and experience level. Be honest about where you are on your investment journey so you don’t make costly mistakes that end your investing career before you get started.