7 Popular Real Estate Investing Strategies Explained
Real estate investing is one of the oldest games in the world. For as long as people have been paying for shelter, someone has been there to make a profit.
Real estate can be intimidating and confusing, especially when you don’t have anyone showing you the ropes.
This article will introduce you to the most popular real estate investing strategies.
Simple as that.
Now, let’s get you in the real estate game.
Disclaimer: Before we get too deep I need you to remember one thing - I am not your financial advisor. I am not your real estate agent. I am likely not even someone you know. So, do not take this article as professional financial advice. I’m just a blogger from Canada sharing his experiences. Deal? … Okay, enjoy.
How Does Real Estate Investing Work?
There are two main ways to invest in real estate - Flipping (Buy & Sell) and Renting (Buy & Hold).
Within those two primary strategies, there are niche strategies that are best used in different situations.
Here’s a brief introduction to 7 popular real estate investing strategies for new investors.
Roommate Rentals
Living in a house and renting out rooms.This is how a lot of investors get started because it is one of the easiest and least expensive ways to get into real estate as an investor.
There is also lower risk involved because you are essentially just letting a roommate pay for some of your monthly mortgage. Not much to explain here.
Single-Family Rentals: Buy a house, townhouse, or condo and rent it out to a tenant.
This is another very common method of RE investing because it can be very simple. This strategy does require a bit more capital that roommate rentals because you will have to own a second property outside of your primary home.
This means that you need to be able to get approved for a second mortgage.
They often say that your first deal won’t be your best deal, but it will be the one that teaches you the most.
If you take nothing else away from this blog, remember this - always run your numbers for yourself. Don’t let your mortgage broker or real estate agent tell you what you can and can’t afford.
If YOUR name is on the purchase agreement, YOU need to know what you are being held accountable for when things go wrong.
Never relinquish the responsibility of knowing what is going on at all times.
Moving on.
Multi-Family Rentals: Buy a duplex, triplex, or bigger multi-unit property and rent it out to multiple tenants simultaneously.
This is the same as the single-family strategy except the building you own has more than one dwelling inside of it.
Generally, this is the most profitable long-term real estate investing strategy. More renters = more rent payments.
Having multiple tenants also reduces your vacancy risk because chances are you will not have all of your units empty at the same time.
Short-Term Rentals: Buy a property and rent it out on Air BnB or VRBO for days or weeks at a time.
This strategy cannot be used in every location, so it’s important that you know the laws of the land before you get in too deep.
When you take this approach, it’s always advised that you can flip or rent your property long-term if local laws ever change. Again, run your numbers before you buy.
You always want to have more than one exit strategy.
Fix & Flip: Properties in decent neighbourhoods that need repairs and renovations sell under market value every day.
“Market value” is what the average comparable home in the area has sold for in recent history.
When you find these diamonds in the rough, you can put a little work into them and sell them later for a handsome profit once their value increases.
If you want to sound like a pro, here’s a buzz word for you - “Forced appreciation”. That’s when you renovate a house to increase its value.
Live-In Flip: This is a relatively low-risk way to get into the RE game.
Just as it sounds, a Live-In Flip is similar to a Fix & Flip except the property you are renovating is your primary residence.
The idea here is that you stay in the house for a year or two while you renovate to take advantage of both forced appreciation and natural appreciation.
As a benefit of staying in the house for an extended time, when you sell your primary residence the government doesn’t generally consider that a business transaction. Instead, they treat you like a regular person who just decided to relocate.
This is how some people avoid the capital gains taxes they would owe if you were selling an investment property.
New Build Assignment Sales: This is when you take advantage of the lower prices available to home buyers who purchase before housing developments start.
When you buy a house before it is built you will generally save money in the long run compared to buying a house resale. In theory, since houses and condo buildings take a few years to build, by the time your property is completed it will have already gone up in value.
An assignment sale occurs when you (the original buyer) sell the ownership of your property before the property is completely finished being built and transferred into your name. If you want to learn more check out this article on the Real Estate Council of Ontario website.
Hopefully, this short overview gives you a glimpse of the many options that are there for you. There are a lot of paths you can take, but you need only choose one. It’s less important which one you choose. More so that you do choose.
You can’t set goals without a target.
Now that you have an idea of the possibilities, the next step is to take ownership of your education and begin plotting the course of your investing career.