Are you considering investing in real estate?
Given the relatively low risk attached to the market, real estate investments tend to be highly attractive for investors looking for a stable source of passive income. As per a report by the National Council of Real Estate Investment Fiduciaries, investments in residential real estate generate an average return of 10.5%. In contrast, if you choose to put your money into a savings account, then you can expect to earn an average return of 0.06%. (Source: FDIC)
Read on as we discuss the best real estate investment strategies that you can use when investing in this market.
Of course, putting your money in the bank offers little to no risk. However, if you invest wisely, then real estate investments can really pay off in the long run. Choosing the right real estate investment strategy is pivotal here. If you are new to real estate investing, then it’s important you choose a strategy that suits your investment goals and helps you generate the returns you are looking for.
1. Investing in Buy and Hold Properties
Buy and hold is a long-term investment strategy where you buy a property and hold on to it until its value increases with time due to inflation. Once the price of the property appreciates, you can sell it to the highest bidder and earn a profit.
Ensuring a positive cash flow is very important to successfully execute this strategy. Besides the purchase price, you also need to account for other costs while you hold onto the property. These include utility costs, maintenance costs, etc. Most buy and hold investors aim to generate long-term profits and short-term cash flow. This can be done by renting out property to offset maintenance costs and earn short-term income until you finally sell the property. Investors can also use the rental income to pay off the mortgage on the property.
If you are new to real estate investing and do not have sufficient capital for maintaining a property for a long period, then you may want to avoid using this real estate investment strategy.
2. Investing in Rental Properties
As the name suggests, this investment strategy involves investing in a rental property. This strategy is similar to the buy and hold investment strategy. It involves purchasing real estate for the purpose of renting it to others. You can generate a significant amount of passive income using this strategy. Bear in mind though, it will take you a while before you break even and start earning a profit.
The good news is, as long as you are able to maintain the property in a good condition, you will be able to attract tenants and earn passive income every month. To maximize your investment, make sure you purchase a high-value property after conducting thorough research on market trends, price levels, the average rent in the area, and other relevant variables. Consider getting in touch with a real estate agent for help.
3. BRRRR Investing
BRRRR is short for buy, remodel, rent, refinance, and repeat. This real estate investment strategy differs significantly from the traditional buy and hold method discussed above. It involves purchasing a run-down or undervalued property using alternative financing from a hard money lender. This is followed by making improvements and remodeling the property to enhance its value
Once the property has been remodeled, you can put it on rent to generate rental income. In the meanwhile, you can utilize a cash-out refinance for paying back the hard money loan you borrowed at the onset.
Finally, you can use the money that remains from the cash-out refinance as capital for purchasing another property and repeat the process.
One of the main advantages of using the BRRRR strategy is that it does wonders for your real estate portfolio. Instead of saving up for years to invest in a property, you can use this strategy to invest quickly and build a diverse investment portfolio to boost your passive income. Investors that opt for this strategy use very little of their own money, relying instead on alternative financing for the capital they need to buy a property.
4. Investing in Airbnb Rentals
This real estate investment strategy works similarly to investing in a rental property. It can be combined with the buy and hold investment strategy where you can sell the property once its price increases and you can sell it to earn a profit.
Even while you hold onto it, an Airbnb rental can serve as a lucrative source of passive income. Short-term rentals also tend to generate a higher return on investment than long-term rental properties. You can set up a flexible pricing system and charge market competitive rates. For instance, during peak seasons, you can charge a higher price and earn more money.
On the downside, renting out your property on Airbnb offers less security since you need to book customers on a nightly basis to produce a stable source of income. If you find yourself overwhelmed, you can hire a professional property manager to manage your rental property.
5. REIT Investing
REIT is short for a Real Estate Investment Trust. This investment strategy involves setting up a business that owns, operates, or provides finance to a real estate property for the purpose of generating income. Investors can buy shares or invest in a mutual fund to earn dividends as well as a return on their investment if they sell the share.
As a stockholder of a real estate investment trust, you can earn a portion of the income generated through the property. Unlike the other options discussed above, you do not have to purchase or manage a property. This investment strategy is highly suitable for those who are new to the real estate market and are looking to make a low-risk investment.
Wrapping It Up
Real estate properties make for highly valuable assets that can help investors build their wealth in a consistent manner. Unlike investing in the stock market, investing in real estate is considerably less risky and can help you earn higher returns. Real estate investors also get to enjoy amazing tax advantages.
The real estate investment strategy you choose depends largely on your experience in the real estate market and how conservative you are about risks and returns.
Get In Touch With Barbie King
If you are looking for a high-income property to invest in, then get in touch with me. I am a real estate agent serving the Greater Indianapolis area and surrounding counties. We can discuss the real estate investment strategy you have in mind and I can help you generate secure returns by investing in the right property,