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Which Real Estate Investing Strategy is Best for Your Goals?

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REI Strategies

As a real estate investor, there are multiple strategies for approaching your investments.

As a real estate investor, there are several different approaches you can use to make some quick cash or grow your portfolio. With so many real estate investment strategies available, it can be overwhelming to determine which option is the best for you.

In this article, we’ll explore some of the most commonly used investing strategies and help you determine which aligns with your financial goals and personal preferences. We’ll do this by:

  • Explaining how each strategy works
  • Discussing how much experience and effort is required
  • Determining how much you need to get started and the return you can expect from it

Are you ready to figure out which investing strategy is right for you? Let’s get started! You can read through all the strategies below or skip to the ones that interest you the most:

House hacking

House hacking is a strategy to generate income from your primary residence by renting out portions, like a bedroom, an accessory dwelling unit (ADU), or two-thirds of your triplex. It’s one of the easiest ways to start real estate investing and doesn’t require any previous experience. 

If you already own a home or other rental property in an area with good demand for rental housing, you may already have everything you need to get started. If you haven’t yet bought a rental property, don’t let this deter you. You can break into house hacking with a traditional owner-occupied mortgage, such as a conventional, FHA, or VA loan, with a down payment of as little as 3% to 5%. You can quickly find lenders who specialize in house hacking or other investing strategies on Lender Finder.

After tenants have moved in, you’ll earn rental income, which you can use to offset your monthly mortgage payments, property taxes, and other expenses. If the monthly rental income exceeds your expenses, you will earn a monthly income from the deal. You will also build monthly equity, which could help you qualify for owner-occupied financing.  

  • Experience level: Beginner
  • Effort: Low
  • Investment amount: Can be low
  • Type of return: Passive income, equity, appreciation

The BRRRR strategy

BRRRR is a real estate investing strategy that stands for “buy, rehab, rent, refinance, repeat.” 

Here’s how it works:

You start by buying a discounted property that needs significant repairs or cosmetic improvements. You then increase its fair market value by rehabbing and renting it out.

After your lender’s seasoning period, which is how long you must own a property before they lend on the appraised value, you can convert your home equity into cash with a cash-out refinance. The lender’s seasoning period is usually 6-12 months from the loan origination date. You can then repeat the process to continue building wealth. 

The BRRRR method may not be the best strategy for a beginner real estate investor. Because several steps are involved in the process, it requires some real estate know-how to ensure everything goes as planned. It may also require more direct involvement in a rental property than some investors prefer.

Another reason why BRRRR investing may not be the best real estate investment strategy for beginners is because of the financial commitment. The renovation costs and repairs could be significant depending on the property’s condition. You may also have to pay for the monthly expenses (utilities, taxes, etc.) out of pocket until the rehab is complete and you rent out the property.

The BRRRR method has several benefits that make it worth considering. You’ll earn steady rental income from your tenants, the property will most likely appreciate while you own it, and you will also get a lump sum payout from your cash-out refinance. 

  • Experience level: Medium
  • Effort: High
  • Investment amount: Medium to high
  • Type of return: Passive income, equity, appreciation, one-time lump sum

The PRR method

PRR is a real estate investing strategy that stands for “primary, rehab, rent.” It involves purchasing an undervalued or distressed property you use as your primary residence. You then rehab it and turn it into a rental property. 

The PRR method is similar to the BRRRR method. The main difference is that you live in the property you buy for a while instead of renting it immediately. The PRR method is also simpler than the BRRRR method. Because of this, a beginner real estate investor interested in the BRRRR method may want to consider the PRR method first. 

  • Experience level: Low to medium
  • Effort: Low to high 
  • Investment amount: Low to medium
  • Type of return: Passive income, equity, appreciation 

House flipping

House flipping, also known as “fix-and-flip,” is a real estate investing strategy that involves buying a property, rehabbing it, and then quickly selling it for a profit. 

Like the BRRRR strategy, house flipping involves buying a distressed or undervalued home and making repairs and renovations. The main difference is that house flippers don’t rent or refinance properties—they’re more interested in selling them and moving on to the next opportunity. 

This is a great strategy for experienced real estate investors who don’t mind putting in the time and effort to rehab a home. Like the other strategies on this list, BiggerPockets has vast educational resources to help you succeed. 

  • Experience level: Medium
  • Effort: High
  • Investment amount: Medium to high
  • Type of return: One-time lump sum

Live and flip

The strategy of living and flipping is similar to house flipping. The main difference with this real estate investing strategy is that you live in the home you buy until you finish rehabbing and selling it. This allows you to make repairs and renovations at your own pace.

Since there’s no rush, you can take as long as you need to rehab the property. This can be an important benefit if you pay for the repairs out of pocket or do much of the renovation work yourself.

  • Experience level: Low to Medium
  • Effort: Low to high 
  • Investment amount: Low to medium
  • Type of return: One-time lump sum

Real estate wholesaling

The real estate wholesaling strategy is ideal for those interested in structuring deals to earn quick cash. You can use this strategy to earn a down payment for a rental property or something else. Some investors prefer to specialize in this strategy to avoid being landlords.

There are two steps to the real estate wholesaling process. First, a wholesaler finds a motivated seller who owns a distressed property with some value-add potential. For example, the property could be in a good neighborhood or need cosmetic improvements. The value-add potential could also be when an investor is willing to trade to find a rental property in a community with high rental demand.

Typically, motivated sellers like these have tried—unsuccessfully—to sell their properties or don’t think they can because the homes are in poor condition. They may also have inherited properties they don’t want and are willing to sell them at a discount to get rid of them. 

A real estate wholesaler is a matchmaker, and the second step in the process is to find an investor interested in buying the property. A real estate wholesaler will get a property under contract (but not actually buy it) and then sell the contract at a higher price to an investor and pocket the difference.

For example, if you get a property under contract for $120,000 and find a buyer willing to pay $140,000, you earn $20,000. You could repeat the process several times a year to earn a full-time income.

To succeed with wholesaling, you will need a lot of real estate investing experience and a strong network of investors looking for properties to buy. Wholesalers typically work as part of a “power team,” which may include:

  • Real estate agents
  • Acquisition specialists
  • General contractors
  • Selling specialists
  • Processors
  • Marketing managers
  • Office assistants

Although the knowledge and experience requirement is high, wholesaling is a low-risk real estate investing strategy that doesn’t require much investment capital.  

  • Experience level: High
  • Effort: High
  • Investment amount: Low
  • Type of return: One-time lump sum

Turnkey

Turnkey real estate refers to buying a fully renovated or newly constructed property ready for immediate occupancy or already rented. These properties are often marketed as low-maintenance passive investment opportunities for real estate investors looking for rental properties that will provide immediate cash flow after the closing.

A potential disadvantage of investing in a turnkey rental property is that it usually costs more than other properties. Because the construction or renovation is already completed, you may not have any control over a property’s appearance and features.

  • Experience level: Low to medium
  • Effort: Low
  • Investment amount: High 
  • Type of return: Passive income, equity, appreciation

Mobile homes

A mobile home park is a type of commercial real estate where multiple mobile homes are located and rented. Parks may also consist of lots with water, sewer, or electrical hookups that you can rent to mobile homeowners. The property could also include ownership of the mobile homes, which are rented similarly to apartment units.

There are several important benefits of investing in mobile home parks to consider. They can provide a steady rental income stream and may also appreciate over time. Because they are more affordable than other rental properties, investing in mobile homes is also a great real estate investment strategy for beginners.

Just a few of the many benefits of mobile home parks include:

  • Recession-resistant
  • Have long-term tenants
  • Require minimal maintenance and capital expenses
  • Have great financing options and tax benefits 
  • Have low competition 

Mobile home parks also don’t require much experience to get started. The repairs and maintenance are usually more affordable than other types of commercial real estate, and there is usually high demand because they are affordable for low-wage earners.

  • Experience level: Low
  • Effort: Low
  • Investment amount: Low 
  • Type of return: Passive cash flow

Foreclosures

A foreclosure occurs when a lien holder reclaims a property. A foreclosure may occur, for example, when someone stops paying his or her mortgage payments. The bank, credit union, or other lender will then take legal possession of the property through foreclosure and sell it to recoup the loaned money.

The foreclosure process varies from state to state but usually involves the property owner first receiving numerous notices. This is followed by legal procedures that lead to foreclosure. 

A foreclosure may require a lot of time, energy, and effort. When some people vacate foreclosed rental properties, they leave them in poor condition. It’s common to walk into a foreclosed property and find significant cosmetic and structural damage and infestations. The property may still have people living in it or an unclean title. 

Although foreclosures can be profitable, real estate investors need a lot of experience and a powerful team of inspectors, general contractors, and real estate attorneys to make this strategy worth it. 

  • Experience level: High
  • Effort: High
  • Investment amount: Low 
  • Type of return: Passive cash flow, equity, appreciation, one-time lump sum

Storage spaces

Self-storage facilities are a type of commercial real estate that consists of multiple storage units on a lot that people can use to store their possessions. They are usually rented monthly. For example, some people may only need to rent a unit for a month, while others may rent units for years at a time. 

Real estate investments in storage spaces can be more complex than single-family home rentals because they involve different regulations, tenant demographics, and property management requirements.

The primary advantage of self-storage facilities over other real estate investments is that they are comparably easier to maintain. Although some facilities are temperature controlled, many are little more than simple metal buildings on concrete slabs. This allows you to enjoy rental income without dealing with maintenance issues common with other property types.

  • Experience level: Medium
  • Effort: Low to medium
  • Investment amount: Low to high 
  • Type of return: Passive cash flow

Real estate mortgage notes

A real estate note is a legal document where a borrower promises to repay a mortgage. There are several investing strategies involving mortgage notes, and one of the most common is to purchase them from lenders. Lenders may agree to this so they can issue new loans to borrowers.

Investing in a real estate note means you aren’t buying the property. Instead, you become the new creditor. The primary advantage of this strategy is that you can earn passive income without being a landlord.

Notes have higher rates of return than the traditional low-yield bonds offered by banks and credit unions. There are also several different types, including:

  • Fixed-rate mortgage loans
  • Adjustable rate mortgage
  • Graduated payment mortgage
  • Balloon payment mortgage
  • Interest-only loans

Mortgage notes are a good option if you want to invest in real estate but don’t want to be a landlord. However, you will need at least $20,000 or more to purchase a note. 

  • Experience level: Low to medium
  • Effort: Low to medium
  • Investment amount: Medium to high 
  • Type of return: Passive cash flow

Real estate investment trusts (REITS)

Real estate investment trusts are similar to mutual funds and are traded in the stock market. Instead of investing in stocks, they invest in various rental properties. Real estate investment groups usually manage REITs.

A real estate investment trust is the easiest, most affordable way to become a real estate investor. You could be investing in REITs already and not even know it. In the U.S. alone, REITs own more than $3.5 trillion in gross real estate assets. 

There are more than 200 publicly traded REITs you can invest in, and most trade for under $100. You can buy and sell them through a traditional brokerage firm such as TD Ameritrade, E-Trade, or Charles Schwab. Many online apps allow you to invest in REITs, such as Robinhood, M1 Finance, and Fidelity.

  • Experience level: Low 
  • Effort: Low 
  • Investment amount: Low
  • Type of return: Passive cash flow

Land

Investing in land for real estate refers to buying raw land to hold onto it for some time and then selling it for a profit. The land can also be developed. This real estate investment can be made for residential and commercial purposes, such as building single-family homes, apartments, or commercial buildings. 

Land investment can also generate passive income by renting it out for agricultural or recreational purposes. Some important risks, however, include zoning changes, economic downturns, and difficulty finding tenants. Land investment requires careful research and analysis of the local market and future development plans.

  • Experience level: High
  • Effort: High
  • Investment amount: Medium to high 
  • Type of return: Passive cash flow, equity, appreciation, one-time lump sum

Commercial property

Commercial properties, used for business purposes, often have longer leases and more steady passive income streams. A commercial property may be an office building, warehouse, retail store, or something else.

Commercial properties, like apartments or single-family homes, may be more expensive than other rental property types. They also tend to be vacant for extended periods.

Someone new to real estate investing should consider other income-producing properties to gain experience before investing in commercial properties.

  • Experience level: Medium to high
  • Effort: Medium to high
  • Investment amount: Medium to high 
  • Type of return: Passive cash flow, equity, appreciation, one-time lump sum

Should You Form an LLC Before Getting Started?

If you’re going to have tenants or guests, you should consider forming an LLC (limited liability company) to protect your real estate investment. Forming an LLC is easy, usually inexpensive, and can save you a lot of stress.

An LLC legally separates you and your real estate investment business. As a sole proprietor, you are responsible for any liabilities, tax liens, and debts your properties assume. If a tenant sues your real estate company or it goes bankrupt, your personal assets will be at risk if an LLC doesn’t protect you.

The requirements to form an LLC vary by state. Contact your state’s corporation commission to learn about the fee and filing requirements.

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