11 types of real estate investing strategies
Real estate investment offers a variety of strategies, each with its own set of risks, rewards, and capital requirements. Here’s a list of some different real estate investment strategies:
Buy and Hold
This one is pretty self-explanatory and one of the most common. Purchase a rental property, rent it out, collect rent while the property itself appreciates over a long term.
Investors can choose to self-manage or pay a part of their proceeds out to a property management company to manage it while they focus on their primary career.
Fix and Flip
Pretty straightforward here but buy a property with an existing issue or issues and fix the problem. It may also include renovating the property to give it a more modern appearance.
Wholesaling
Wholesaling is the process of soliciting homeowners to sell their properties at an under-market-value price, then turning around and selling/assigning the rights to the contract to another investor for a fee. This strategy is often a great way to get your foot in the door, as it doesn't necessarily require any upfront investment at all, other than the time it takes to identify a property and get it under contract.
Short-Term Rentals (Airbnb, VRBO, etc.)
Sometimes people want a spacious, private, and cozy home to stay in while on vacation, complete with kitchen and laundry, instead of a tiny hotel room. Short term rentals are for those people. Investors should focus on high-demand vacation areas when identifying potential properties.
Real Estate Investment Trusts (REITs)
Investors buy shares in publicly traded companies that own and manage real estate properties. These can be ideal for those investors who really just want to invest in "the real estate industry" completely passively and without any responsibilities on their end.
Commercial Real Estate
Office buildings, retail centers, and industrial facilities for leasing to businesses. Requires a large amount of capital. Probably not a great time to get into this given the current market where so many people have transitioned to "work from home" roles.
Real Estate Note investing
Investing in real estate notes involves purchasing a promissory note from a borrower, typically secured by a property, and receiving regular payments (interest and/or principal) until the note is paid off.
House Hacking
The process of purchasing a single property and occupying a single bedroom (in a single family home) or an entire unit (in a multifamily home) and renting the other rooms/units. More below:
Brooks Lawson
Real Estate Development
The process of purchasing undeveloped or underdeveloped properties and developing them for sale. These can be residential, commercial, or mixed-use properties. Ideal for investors who may be looking to get their hands dirty.
Seller Financing
This can be useful in a difficult seller's market, as it can open up your options for selling. Pretty straightforward, you become not only the seller, but the bank as well, accepting payments from the buyer on a property that you own free and clear. But financing is a complex industry and you open yourself up to all kinds of legal liabilities, if you're not careful.
Buy, Rehab (or renovate), Rent, Refinance, and Repeat (BRRRR)
This is one of my favorite strategies, as it combines several different smaller strategies into one big one.
- Buy - Typically off-market, if possible, to get a better deal. Probably a home that needs work.
- Rehab - repair any deficiencies and possibly update/renovate to a more modern look and feel.
- Rent - Find a tenant to lease the property
- Refinance - Specifically what's known as a "cash out refinance", which is where you get a new appraisal with the "after repair value (ARV)" and "cash out" the difference in the new a previous value.
- Repeat - Take your new cash and use it as a down payment on the next project.
In this way you're continuously expanding your real estate portfolio without ever bringing new cash into the equation.