Real estate investing began at the very moment when the first property was bought, which makes it one of the oldest forms of investment. It is one of the five asset classes that any serious investor will inevitably have in their portfolio.
Since virtually any kind of money-making that involves real property are considered to be acts of real estate investing, a significant number of strategies will fall under the definition. And while strategies continue to multiply and evolve due to the advancement of different aspects of society, these will ultimately just be variations on the following basic, time-tested real estate strategies that even a beginner can understand:
1. Buy & Hold
This involves buying a property for the purpose of generating regular cash flow from tenants. As the landlord, you’ll also carry on the cost of repairs and taxes.
The primary challenge here is the high acquisition cost. Ideally, you’d want to use cash to avoid interests, and the only other alternative if you don’t have it is to use financing.
2. Property flipping
The idea here is to buy, and then sell at a higher price after you’ve increased the value of the property by fixing it up. One popular tactic “flippers” do is to find houses that only need cosmetic repairs, which are significantly cheaper to do, thus preserving profit margins.
However, a common problem that most flippers run into is the difficulty of unloading the property. The longer you sit on it while waiting for a buyer, the more money you’ll lose on mortgage, insurance, utility payments and taxes.
3. Assigning contracts
This is a strategy that’s ideal for most beginners, since “assigning” a contract from a seller to a buyer requires barely any cash to do.
One major hurdle here though is that you need to flip a lot of contracts fast to make decent money, since you’ll be getting only a small amount after taxes, and you can’t jack up the price too much as it’ll drive away potential buyers.
4. Buy, Renovate, Rent, Refinance, and Repeat
This strategy incorporates Buy & Hold and takes advantage of refinancing to recoup capital. Beginners might want to get into this after making a few profitable deals and gaining some experience and trusted network of contacts.
Arguably the biggest difficulty here is securing a good refinancing deal from the bank. Banks will approve your loan only under certain conditions, and every bank may give you a different deal. There are also a number of funding sources you can look into: a private lender, home equity loans, Home Equity Line of Credit (HELOC), etc.
An easy-to-understand infographic that elaborates on these 4 investment strategies, as well as other real estate investment resources, can be found on Sell My House OfferClimb Phoenix blog.