Real estate can be a lucrative market to invest in, but many new investors have difficulty deciding when and how to invest. We’ve collected the top five strategies to grow your real estate portfolio and increase your returns to help new investors get their foot in the door or choose how to invest in their next property.
Perfect Strategies To Follow
Strategy 1: Lease-to-Own
Notes: Great for Tight Budgets, Low Credit Scores, or Low Capital
If you are starting your real estate journey from scratch, you can benefit from a lease-to-own scenario for your first property. A lease to own is an agreement to rent a property for a set amount of time; it includes a pre-determined purchase price that you can take advantage of at any point within the lease contract.
Typically, a portion of your rent will go toward the purchase price. And you will automatically start building equity in the home. It’s a great way to settle into your primary residence while getting your foot into real estate— bonus points if your lease-to-own agreement can be combined with house hacking.
Strategy 2: House Hacking
Notes: Great for Beginners
House Hacking is a real estate investment strategy where you purchase a property to live in but rent out extra space. This can be renting out extra bedrooms in a single-family home, buying a duplex, and living in one of the units. Your tenant’s rent will help offset your personal living expenses and help pay for the mortgage while you build up equity in the property and gain property management experience.
House Hacking is an excellent idea for hands-on landlords and folks just getting started in investment. It’s one of the more straightforward strategies, though it does require being a hands-on landlord since you live on the property and being proactive in finding suitable tenants— especially if you will be living in the same house.
Strategy 3: House Flipping
Notes: High Risk, High Reward
House flipping is when you purchase a house that needs some TLC, perhaps from a foreclosure, as-is sale, or auction. You then spend the time and money to rehab the property before turning around and selling it for a profit.
House flipping requires many things: the money to invest in purchase and repair and a strong network of professionals, including contractors, inspectors, and real estate agents. You need to have a keen eye for property potential and learn to estimate projects and budgets. You need to know you can rely on your contractors to stay within budget and keep you up to date on completion; some flippers decide to get licensed and join in on the project for a more hands-on approach.
It’s a risky investment, as market fluctuations may mean you don’t sell as high as you would like. But the rewards are lucrative when the market and renovations work out in your favor.
Strategy 4: Buy & Hold
Notes: Requires Patience and a Good Eye for Market Fluctuations
Buy & Hold is a long-term investment strategy. You first purchase the home and turn it into a rental, and then you wait for the property to appreciate. Once the property has gained value, you can either rent or move to sell. If you offer the property as a long-term rental, you may even work out a deal with your tenants to let them purchase the property while still making a tidy profit.
You need to have an eye on the market when you decide to Buy and hold, as you only want to sell when it benefits you. Since you aren’t in a hurry, you can wait out buyer’s markets and let the property continue to gain value. You may even decide to update the property value through small renovations here and there.
Strategy 5: The BRRRR Method
Notes: Slow to Start but Good Snowball Potential
BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. The beginning strategy is similar to house flipping in that you find a purchase below market value and work to renovate it and raise the property value. However, unlike flipping, which seeks a fast turnaround for sales, with the BRRRR method, you instead rent out the property and let the cash flow stabilize. You then take that profit and refinance the home to get back your initial capital and repeat the process with another home.
The BRRRR method can be slower to get started, as you have to renovate the first property and let it stabilize before refinancing to reinvest. However, once you get a feel for the process, it will grow more efficient and lead to more sustainable wealth.
On the bright side, having success in rental property management and the intent to rent properties will increase your ability to qualify for faster rental assistance loans to finance your future properties.
Need Help Choosing the Best Strategy?
Finding the right real estate investment strategy isn’t always easy. Some investors choose to mix and match strategies based on the property. Don’t be intimidated and think you have to pick one strategy and stick with it. As your portfolio grows and you gain more experience, you can start branching out to other property types to diversify your portfolio.
As you start your investment strategy, look into investment groups. These are communities of like-minded individuals, including veteran investors who may be willing to mentor you for your first properties.