9 Best Steps to Real Estate investment
Real estate investing is an ideal investment. As a new investor, these numerous choices can be overwhelming. Here are some strategies that will give you a better idea of how to make money in real estate investing. You could look at real estate investing and wealth building as climbing a mountain. Strategies are like plans for how to climb up the mountain in the first place.
The Fix-and-Flip strategy is the business of finding properties that need work, doing the repairs and reselling them at top price for a profit.
Wholesaling is the business of finding good deals on investment properties and then reselling them quickly for a small markup. The crux of this business is being good at marketing and negotiating to find those good deals. If you’re good at sales, you’ll like wholesaling.
House Hacking means living in a home that also produces income, like in a duplex, triplex, fourplex, or house with extra rentable space like a basement, guest house, or spare bedrooms. By renting out part of your residence, you can reduce your total housing costs. House hacking is also an amazing strategy because you learn the landlord business while living at your rental. And once you are done living there, you can move out and transition the property to a long-term rental.
Live-In-Then-Rent is simply living in a house that will eventually become a rental. This means the house must work as your home and as an investment later on. But unlike house hacking, you don’t rent the property while you live there. Doing this strategy a few times is a great way to build a small portfolio. And you don’t have to live next to your tenants like house hacking.
The Live-In Flip is a strategy where you buy and move into a home, fix it up, and wait two years or more to resell it for a profit. If you follow the IRS rules, you pay NO tax on the profit up to $250,000 for an individual or $500,000 for a couple filing jointly.
Short-Term Buy and Hold Rentals
This strategy involves buying and holding rental properties for relatively short periods of time – perhaps 1 to 5 years. Often the purpose of this strategy is to force property appreciation (aka add value) by remodeling, raising the rent, decreasing expenses, or all of those. The short-term buy-and-hold strategy works very well for multi-unit apartment turn-around projects. It also works well for rentals in high-priced, appreciating markets that don't have cash flow as well.
Long-Term Buy and Hold Rentals
This is the strategy of owning real estate with the intention of keeping it for the long haul. The benefits of this slow and steady strategy include rental income, tax shelter from depreciation expenses, amortization of loans, and price appreciation.
The Trade-Up Plan
The Rental Trade-Up Plan is perfect for entrepreneurial investors willing to juggle a lot of moving parts. This strategy is a way to quickly build real estate wealth and income by moving from smaller to larger properties, typically using a technique called a 1031 tax-free exchange.
Real Estate Investment Trusts (REITs)
Real estate investment trusts (i.e. REITs) are very similar to mutual funds. But instead of allowing you to own a piece of many stocks or bonds, these REITs allow you to own a piece of many commercial, income-producing properties. Unlike most of the other investment strategies above, this strategy truly is passive once you buy it.
Keep in mind that most investors combine different strategies at different times. Real estate investing is an entrepreneurial venture. Sometimes you have to experiment and try things that don’t work before you find your sweet spot.