Real Estate Investing: 10 Best Strategies for Beginners and Pros

One popular type of investment among many investors is real estate. This is because investors enjoy unique tax benefits, capital appreciation and diversity in portfolio.

For a long time, the most common way of investing in real estate has been through investing in physical property. However, the landscape has changed over the years and now real estate investors don't have to own property. They can for example invest in real estate by buying shares of REITs.

Key Points

• To invest in real estate, you don't have to own physical property. There are other viable alternatives like REITs and REIGs
• Some popular real estate investing options include commercial real estate investing, residential real estate investing, land real estate investing and industrial real estate investing
• As a beginner or pro real estate investor, some of the best real estate investing strategies include: Buy and rent, buy and hold, fix and flip, BRRRR, REITs, REIGs, crowdfunding, wholesaling, house hacking and private lending
• Before getting into real estate investing, ensure that you have a clear idea of what your goals are, do your due diligence and engage a qualified real estate professional so that they can help you to make informed decisions

Disclaimer

The contents of this article are for educational purposes only. They are not intended to be a source of professional financial advice. You will find experts on financial planning, financial management, and real estate here. More on disclaimers here.

Popular Real Estate Investing Options

There are different real estate investing options depending on your goals as an investor. Some of the popular ones include:

• Commercial real estate investing
• Residential real estate investing
• Land real estate investing
• Industrial real estate investing

10 Best Strategies For Real Estate Investing

Real estate investing can be a profitable way to build wealth over time, but it's important to have a solid strategy in place to minimize risks and maximize returns. Here are some strategies that can be effective for real estate investing.

1. Buy and Rent

Buying and renting out real estate is a popular investment strategy that involves purchasing a property and renting it out to tenants.

Many real estate investors tend to buy single-family properties, condos or townhomes for rental property. Before you make your purchase though, ensure that you research the best locations where there is high demand so that you're able to make profit in the form of rental income.

Pros

• Rental properties can provide a steady stream of passive income, as tenants pay rent each month.
• Over time, the value of the property may increase, allowing the investor to sell it for a profit.
• Real estate investors can take advantage of several tax benefits, including depreciation deductions and deductions for mortgage interest.
• Real estate investors have a high level of control over their investment, including the ability to choose tenants, set rental rates and make improvements to the property.
• Real estate is often seen as a hedge against inflation, as rental income and property values tend to rise with inflation.

Cons

• Acquiring and maintaining rental property can require a significant amount of capital, including the down payment, closing costs, and ongoing maintenance expenses.
• If the property is not occupied, the investor may not generate rental income and may need to cover the mortgage and other expenses out of pocket.
• Managing rental properties can be time-consuming and may require hiring a property manager, which can reduce profits.
• Real estate values can be volatile and can be affected by changes in the local real estate market or broader economic factors.
• Real estate investors can be held liable for injuries or damages that occur on their property, which can be costly and time-consuming to address.

2. Buy and Hold

Buy and hold investment strategy is a real estate investment approach where an investor buys a property and holds it short term or long term, depending on their investment strategy and goals.

Usually an investor will buy an undervalued property, fix it and then rent it out so as to generate rental income and potentially realize capital appreciation. If they want to sell the property, instead of accepting cash, they re-invest in another property using the 1031 exchange rule in order to save them from paying taxes in the form of capital gains

Pros

• The buy-and-hold strategy allows investors to generate passive income from the rental payments from the property over a long period of time.
• Investors can take advantage of tax deductions on mortgage interest payments, repairs, and other expenses associated with the property, thus lowering their tax liability.
• Over time, real estate properties can appreciate in value, allowing investors to build equity and potentially sell the property for a profit in the future.
• Investing in real estate properties can help diversify an investor's portfolio, reducing their risk exposure to other asset classes.

Cons

• Owning a rental property involves managing the property, finding tenants, collecting rent, and dealing with maintenance and repair issues, which can be time-consuming and stressful for some investors.
• Real estate markets can be volatile, and the value of the property can fluctuate depending on the local economic conditions, which can affect the rental income and the potential appreciation of the property.
• Real estate investments are not easily liquidated, which means that it can take time to sell the property if needed, which may not be ideal for investors who need to access their investment quickly.
• Buying a property requires a significant upfront investment, including a down payment, closing costs, and other expenses, which can be a barrier for some investors.

3. Fix and Flip

Fix and flip is a real estate investment strategy that involves purchasing a distressed or undervalued property, renovating or rehabilitating it and then selling it for a profit. It is generally considered as a high risk investing strategy.

Pros

• If executed successfully, fix and flip can generate high returns on investment in a relatively short period of time.
• Investors have full control over the renovation process and can make design and construction decisions that maximize the property's value.
• Fix and flip is an active investment strategy that requires hands-on involvement, making it a good fit for investors who enjoy the renovation process and have experience in construction and real estate.
• Investors who specialize in a particular market or neighborhood can use their knowledge and expertise to identify undervalued properties and maximize their returns.

Cons

• Fix and flip investments come with significant risk, including unforeseen construction and renovation costs, market fluctuations, and unforeseen delays that can impact profitability.
• For this type of strategy, investors require significant upfront capital to purchase and renovate the property, which can limit the number of properties an investor can pursue.
• The process of purchasing and renovating a property requires a significant time commitment, from identifying the property to renovating and selling it, which can be challenging for investors who have other full-time commitments.
• The fix and flip market can be competitive, and investors may need to compete with other investors and developers to find suitable properties.

4.BRRRR

BRRRR, which stands for Buy, Rehab, Rent, Refinance, Repeat, is a real estate investment strategy that involves buying a distressed property, renovating it, renting it out, refinancing it to extract equity and using that equity to purchase more properties. The investor usually pulls out cash once the property is able to generate constant cash flow.

Pros

• By renovating a distressed property, investors can increase its value and generate significant equity.
• Renting out the property can generate cash flow, which can be used to pay off the mortgage or invest in other properties.
• By refinancing the property and extracting equity, investors can use the funds to purchase additional properties, which can accelerate portfolio growth.
• As a real estate investor, you may be able to deduct expenses related to your property, such as mortgage interest, property taxes and repairs.

Cons

• Real estate markets can be volatile, and the value of the property can fluctuate depending on the local economic conditions, which can affect the rental income and the potential appreciation of the property.
• Renovating a property can be costly and time-consuming, and unforeseen issues can arise, which can increase the renovation costs and affect the profitability of the investment.
• Refinancing a property involves obtaining a new loan, which can be challenging if the property's value does not appreciate as expected or if the investor's financial situation has changed.
• As a landlord, you'll be responsible for managing the property, finding tenants, and dealing with maintenance and repair issues, which can be time-consuming and stressful for some investors.

5. REITs (Real Estate Investment Trusts)

Real Estate Investment Trusts (REITs) are companies that usually invest in income producing real estate such as apartment buildings or malls. Such properties typically generate income every month in the form of rent, of which REITs distribute 90% of that income to its shareholders in the form of dividends.

This type of real estate investment strategy that allows individual investors to invest in a professionally managed portfolio of real estate assets. They are a great option for investors who would prefer to invest in real estate but not own any physical assets.

Pros

• REITs offer investors access to a diversified portfolio of real estate assets, which can help to spread risk.
• They are traded on public exchanges, which means that investors can buy and sell shares easily and quickly.
• REITs are managed by professional managers, who handle all aspects of property management, including tenant selection, rent collection, and maintenance.
• REITs are a passive investment option, meaning investors don't have to be involved in the day-to-day management of the properties.

Cons

• As investors don't have direct ownership of the properties owned by a REIT (Real Estate Investment Trust), they have limited control over the investment decisions and management of the properties.
• REITs often charge fees and expenses, which can eat into investors' returns.
• As REITs are managed by professional managers, investors may have limited transparency into the investment decisions and management of the properties.
• REITs are subject to market fluctuations, which means that the value of the shares can go down as well as up.

6. REIG (Real Estate Investment Groups)

Real Estate Investment Groups (REIGs) are a type of real estate investment strategy that involves pooling funds from multiple investors to purchase and manage properties as a group.

Pros

• A REIG (Real Estate Investment Group) can allow individual investors to invest in real estate with a relatively low initial capital investment.
• By pooling funds, REIGs can invest in a range of properties, which can provide investors with a diversified real estate portfolio.
• REIGs are managed by professional managers, who handle all aspects of property management, including tenant selection, rent collection and maintenance.
• REIGs are a passive investment option, meaning investors don't have to be involved in the day-to-day management of the properties.

Cons

• Because investors don't have direct ownership of the properties, they have limited control over the investment decisions made and management of the properties.
• REIGs are not a liquid investment, as investors may have limited ability to sell their shares in the group.
• REIGs often charge fees and expenses, which can eat into investors' returns.
• As REIGs are managed by professional managers, investors may have limited transparency into the investment decisions and management of the properties.

7. Crowdfunding

Crowdfunding is a real estate investment strategy that involves pooling money from multiple investors to finance the purchase, renovation or development of a property.

How it works is that an investor uses a real estate investment platform to connect to real estate developers and other investors. Through the platform, investors can identify which investment projects best suit their needs.

Pros

• Crowdfunding platforms allow investors to participate in real estate investments with lower minimum investment amounts, making it accessible to a wider range of investors.
• These platforms offer a variety of investment opportunities across different asset classes, locations, and risk levels, allowing investors to diversify their portfolio.
• Investors can earn rental income and potential capital gains without the hassle of managing the property.
• Crowdfunding platforms provide investors with detailed information on the property, its financials, and the investment structure, allowing them to make informed investment decisions.

Cons

• Crowdfunding platforms charge fees for their services, which can reduce the overall returns of the investment.
• Real estate markets can be volatile, and the value of the property can fluctuate depending on the local economic conditions, which can affect the rental income and the potential appreciation of the property.
• Crowdfunding investments can be illiquid, and investors may not be able to sell their shares easily or quickly.

8. Wholesaling

Wholesaling is a real estate investment strategy that involves finding and securing a property at a below-market price, and then assigning or selling the contract to another investor or buyer for a profit, without taking ownership of the property.

Essentially, the price that you quote to the prospective buyer or investor includes the property fee plus your premium which is basically your finder's fee.

Pros

• Wholesaling requires little or no upfront capital, making it an accessible investment option for beginners.
• Real estate wholesaling can generate quick profits, as the investor can make money by assigning or flipping the contract to another buyer or investor without taking ownership of the property.
• There is minimal risk involved as the investor does not taking ownership of the property, is not responsible for any repairs or maintenance and therefore face minimal risk.
• Wholesaling can help investors to network and build relationships with other investors, agents, and wholesalers in the real estate industry.

Cons

• Wholesaling can be highly competitive, with many investors vying for the same properties.
• To be successful in wholesaling, investors need a strong understanding of the local real estate market, as well as an ability to identify properties with potential.
• Wholesaling involves negotiating with sellers and buyers, and investors need strong negotiation skills to secure good deals.
• Wholesaling can be subject to legal restrictions, and investors need to ensure they are compliant with the relevant laws and regulations in their state.

9. House hacking

House hacking is a real estate investment strategy where you purchase a property, live in one part of it, and rent out the other parts to generate rental income. This can be a great way to start building wealth in real estate with minimal upfront costs.

Pros

• With rental income from the other units, you can offset or even eliminate your housing costs, which can help you save money and pay off your mortgage faster.
• By renting out the other units, you can generate rental income that can be used to pay off your mortgage or invest in other properties.
• As a real estate investor, you may be able to deduct expenses related to your property, such as mortgage interest, property taxes and repairs.
• When you're ready to move out, you can continue renting out the property and turn it into a cash-flowing rental property. Alternatively, you could sell the property and use the proceeds to invest in other real estate properties.

Cons

• Living in a property with tenants can limit your privacy and personal space, which may not be ideal for some investors.
• As a landlord, you'll be responsible for managing the property, finding tenants and dealing with maintenance and repair issues, which can be time-consuming and stressful for some investors.
• Real estate markets can be volatile, and the value of the property can fluctuate depending on the local economic conditions, which can affect the rental income and the potential appreciation of the property.
• Living in a property can create an emotional attachment to the property, making it harder to make rational investment decisions.

10. Private lending

Private lending is a real estate investment strategy where investors lend money to real estate developers or property owners who are unable to obtain traditional financing from banks or other financial institutions.

Pros

• Private lending can offer a steady stream of income in the form of interest payments from the borrower.
• Private loans are typically secured by the property, which means that investors have collateral in the event of default.
• Investors can choose which borrowers to lend money to and can set their own terms and conditions for the loan.
• Private lending can offer diversification to a real estate investment portfolio.

Cons

• Private lending is a high-risk investment strategy, as it involves significant financial investment and market uncertainties.
• Private loans are typically illiquid, which means that investors may not be able to access their capital until the loan is repaid.
• Investors need to conduct thorough due diligence on the borrower and the property to assess the risk of default.
• Private lending is subject to various state and federal regulations, which can impact the terms and conditions of the loan.

How to Select the Best Real Estate Investment Strategy for You

To invest in real estate and generate substantial income, you need to select the best investment strategy for you.

Selecting the best real estate investment strategy for you can depend on a variety of factors such as your financial goals, risk tolerance and investment timeline. As you plan to get started in real estate investing, make sure you have a clear idea of what your goals are, and what you want to achieve in the long run. Also, be sure to do your due diligence before you commit to any investment.

Lastly, seek advice from a certified and qualified real estate professional so that they can help you to make informed decisions. Remember, only go for real estate investment strategies that are tailored to your unique goals and financial situation.

Bay Street Capital Holdings

Bay Street Capital Holdings is a Black-owned, independent investment advisory, wealth management, and financial planning firm headquartered in Palo Alto, CA. They firm manages portfolios with the goal of maintaining and increasing total assets and income with a high priority on managing total risk and volatility.

Bay Street was founded by William Huston after 13 years of supporting the United States' largest retirement plan ($650B) Thrift Savings Plan. He was recognized as Investopedia’s Top 100 Financial Advisors for 2022. In California, Bay Street Capital Holdings is the only Black-owned firm out of the twenty firms that received this recognition.

In Scottsdale Arizona, Ekenna Anya-Gafu CFP, AAMS is recognized among the Best Financial Advisors for his responsiveness, friendliness, helpfulness, and detail. Bay Street was founded to advocate for diverse and emerging fund managers and entrepreneurs.

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https://www.investopedia.com/investing/simple-ways-invest-real-estate/

https://www.entrepreneur.com/starting-a-business/6-effective-real-estate-investment-strategies/439883