Real estate investment is a vital part of financial planning for everyone. The big question is what the best real estate investment strategy is for you.
There are many ways to invest in real estate. So which are the best options for you personally? What factors should be guiding those choices?
Choosing the Best Real Estate Investment for You
The truth is that there can be many great ways to invest in real estate. Each has their pros and cons. Some may or may not be genuinely superior to others. The most important factor is choosing the best method of investing for you as an individual.
There are two main factors that should be influencing your decisions; your goals, and your resources.
You’ve got to choose the right path that will take you to where you really want to go. Just investing in real estate in general, or getting more money may not deliver the results you really want.
Some important questions you may want to ask yourself include; what are my net worth and income goals? What is my timeline? How much time am I happy spending on real estate investment? What are my legacy goals?
Everyone is starting from a unique place. Some real estate investors are starting out with hundreds of thousands or millions of dollars. Others don’t have any spare change, and bills are coming due. Some new investors have all the free time in the world. Others can barely find the time to brush their teeth twice a day. Some are well connected, others not so much. Some have great credit. Others have terrible credit, or no credit at all.
Find the strategy which best matches both your goals and your resources.
Types of Active Real Estate Investment
There are two main forms of real estate investment; active or passive. Each has several strategies to choose from. Once you’ve answered the above for yourself you’ll be able to dig in and select which direction is right for you to get started with. The three most common types of active investment are wholesaling, fixing and flipping houses, and becoming a hands-on landlord.
Real estate wholesaling is often a great start for those getting in with limited resources, but some time to invest. Even experienced investors and those with plenty of capital may also find this their preferred strategy if they want heavier cash flow and to build a real business.
Fixing and Flipping Houses
Buying, fixing, and flipping houses has proven to be incredibly profitable for many real estate investors. It can be time intensive, take more capital, and require more expertise across a wider variety of factors. Yet, it can also be highly rewarding both personally and financially.
Becoming a Landlord
Becoming a hands-on landlord is still one of the most common ways people attempt to get started in real estate investing. Owning rental properties is a powerful way to generate both cash flow and build wealth over the long term. However, it also requires good property management skills, and can be more time intensive than some anticipate.
However, note that all of these ‘active’ real estate investment strategies can be made more passive with systemization and automation. By taking a business-like approach investors can also develop their own valuable brand and company in addition to the direct benefits real estate provides.
PASSIVE REAL ESTATE INVESTMENT
Passive real estate investing is for those looking to create surplus cash flow yields, and perhaps build wealth, but without having to physically be involved to generate returns. This is critical for retirement, creating more free time, and maximizing what you can achieve in any time frame. Again, there are several forms of passive investment to choose from.
REAL ESTATE INVESTMENT FUNDS
Investing in funds, REITs, and real estate stocks is a well-known way to profit from real estate passively. This can be done directly with certain funds, through crowdfunding platforms, and through stock brokers. Unless you are day trading this can be totally passive once you’ve made an investment. If you have zero time, don’t understand the market, and are happy delegating all decisions and management to a broker and asset manager then this can work for you. The downside is that with publicly traded stock investors are exposed to highly volatility and often no downside protection, and have no control.
TURNKEY REAL ESTATE INVESTMENT
Turnkey real estate investing offers a form of hybrid approach which means investing directly in income properties, but enjoying professional management. That can mean no having to be involved with daily property management, tenant placement and rent collection, or maintenance. Your time is yours, and you have the benefits of direct investment. The key here is finding a very reliable and reputable turnkey operator.
An increasingly popular option for investors with capital is private money lending. Simply lend your money to other investors who will do the active wholesaling, fixing and flipping, or acquiring and managing rentals, and receive a good return without having to get your hands dirty. It is truly passive, and normally offers far superior yields to other investment options.
5 Keys to Successful Real Estate Investment
No matter which form of real estate investment you pursue these factors are likely to play an important part in your success.
1. Real Estate Education
No matter how you invest it is only common sense to try and learn as much as possible. The more you know the better you’ll select investments and be able to vet service providers. This doesn’t have to mean a college degree, but the more books, courses, events, coaching, or video training you can take in the better.
2. Real Estate Comps
Whether you are wholesaling real estate, flipping houses, looking for rental homes, or are making private loans understanding and obtaining the best comps can ensure you are making sound and profitable investment choices. You need to know the value of your assets and collateral. Know where to get your own comps, how to use them, and where those presenting deals to you are getting them from.
3. Motivated Sellers
Whether it is sourcing income property deals, wholesale properties, rehabs, or relying on front line investors to pick your portfolio options, motivated sellers will play a significant role. Motivated sellers are key to securing value and profit in investments.
4. Cash Buyers
Cash buyers continue to be a critical component in the real estate market. You need cash buyers for wholesaling, prefer them if you are rehabbing and flipping houses, and as a landlord or private lender may ultimately need strong cash buyers available when you want to liquidate your assets. Knowing your exit strategy in advance, and having multiple exit strategies is vital in any investment. Cash buyers are definitely one of these preferred exits. Having them lined up in advance can certainly enhance your chances of success while reducing risk.
5. Private Lenders
Institutional lenders are not always available to real estate investors when needed. Institutional lenders don’t always offer the best financing deals, or a process which is efficient enough to be viable. Whether it is capital for acquisitions, rehab funds, working capital, or releasing pent up equity there is a substantial need for constant liquidity. Private lenders can play a valuable role here, while enjoying premium returns for the value they add to the market.
Optimizing Your Real Estate Investment Mix
While there is great sense in staying focused in the beginning eventually many individuals will want to expand and diversify into multiple real estate investment strategies. This is intelligent too as these different strategies can complement each other, create more value and profit, and can keep overall finances and investment performance balanced and on target. For example; wholesaling may provide lump sums of cash and cash flow when you get stuck on a rehab project. Rental properties may turn in regular cash to cover the basic bills while you work bigger flips. Private lending can deliver aggressive returns during periods where your stocks or turnkey properties may not be appreciating as fast as you’d like.
So hone in and master you primary or initial strategy, and then expand.
However, perhaps most important of all is who you work with, invest with, and learn from. The market needs all of these strategies and investors. Yet, the results you realize will depend a lot on the quality of the knowledge you gain, and the business partners you work with. Make this a top priority when evaluating investments, educational training options, and providers of properties, financing, and management.
Which style of real estate investment will you start with or add to your mix next?