Real estate investing is one of the best passive income streams you can build. Buying a property and then renting it out or holding it for future gains when the market is hot is a great way to generate capital over the long run. The industry is huge, with millions of homes sold across the country every single year.
Real estate investing is a broad category though, and it is important to note some of the differences between strategies and which ones are the most lucrative. You want to spend your time on the things that give you the biggest returns, so it is best to focus your efforts. Real estate investment could refer to residential or commercial real estate, but whichever you choose, here are the top seven strategies for investing in real estate.
You shouldn’t jump into any investment without a lot of planning first. This is a big commitment both for your time but also for your capital. That means making sure the timing is right for you. You should also ensure the timing is right for the market. Buying at the bottom of the market when things are slow is a great way to scoop up a valuable property at a discount and hold it for a long time to make a profit.
Buying and holding the property over the long term will maximize your returns and give you the best income as well. Rents often rise annually, but your mortgage payments will remain the same. You can take advantage of this difference and maintain a steady and growing cash flow over the years.
Particularly for investors working in red-hot real estate markets, this strategy can be highly lucrative. First, you need to find a property with a lowered value due to neglect, lack of maintenance, and possibly an outdated style. Once you buy the property, you can fix it, renovate it, and spruce up the look of the home, and put it back on the market quickly.
Typically fixing the key areas like the kitchen, bathrooms, and increasing the curb appeal through gardening, repainting, and refacing will give you the best returns. This works best in a hot real estate market where it is easy to find a buyer at a higher price point soon after you fix the house up.
A popular rental strategy over the last few years has been the short-term rental, through providers like Airbnb. This is a great real estate investment strategy no matter what your initial budget because you can rent out a space as small as a single room to an entire house. This strategy can require some extra work on your part to keep the property in shape; you’ll also need to manage the guest turnover between stays. However, there are property management companies that can help with your property rentals whether they are short or long term stays and this takes much of the work out of the process.
If you enjoy being a host, then instead of just renting a space or a property as a short term rental, you can create a full bed and breakfast establishment. This is more of a full-time job and you will need to be prepared for the time and work commitment. However, if your property is in a tourist hotspot and you like to host people, this could be a great real estate investment strategy for you.
No, this isn’t about real estate investment in Alaska. This strategy stands for Buy, Rehab, Rent, and Refinance. It requires buying a property, renovating it to get it tenant-ready, renting it out, and then refinance the rented property to buy a second one. Eventually, this could lead to multiple properties in your portfolio.
Crowd-Sourcing Your Investment
Real estate investment can be a capital-intensive venture that requires tens if not hundreds of thousands of dollars. Crowd-sourcing your investment is a great way to pool capital to buy a property for investment. You can buy into a crowd-funded real estate company (options are limited) for often as low as $500, putting you on the property ladder and generating passive income at the same time.
Commercial Real Estate
This strategy follows many of the steps of buying a residential property to rent it to a tenant, but this is often a pricier option. Commercial real estate can be several times more expensive than residential real estate and is an entirely different market. The capital outlays will be higher for a commercial property, and the commercial real estate market is heavily tied to the general health of the economy.
Additionally, in a new work-from-home normal, demand for commercial real estate has never been lower as companies look to downsize their office footprints. This still leaves retail locations, dentist and doctor offices, and many other commercial real estate options, though.
One of the biggest benefits of commercial real estate investment is that the tenants rarely have disputes, and when they do, they are much simpler to fix. Residential tenants have particular needs for themselves and their families, and this can mean that their demands are much higher. Office space, on the other hand, only needs to provide space for everyone to work with functioning electricity and internet connections.
Additionally, it is usually more difficult to evict residential tenants if they stop or cannot pay rent anymore. Courts are more lenient in considering their situation as they make decisions about evictions. Commercial tenants do not have the same luxury as they are businesses and are assumed to know the risks of their operations, including the responsibility to pay their rent.
Investing for the Future
No matter what real estate investing strategy you use, real estate investing is a great, long-term, passive income stream that can yield returns for years into the future. All of the strategies above are best used when executed over a long timeline. Real estate as an asset can be a highly lucrative one when approached with a measured and focused business plan, and all transactions should be treated as serious business deals. If you are ever unsure of how to proceed, it’s always best to consult a professional.