What real estate investment strategies exist?
You’ve probably been intimidated about making a real estate investment because you have the preconceived idea that it takes a lot of money and experience to be successful. For this reason, I would like to explain 10 real estate investment strategies that you could consider depending on your personal situation and interests.
In my personal case, I have tried 3 of the real estate investment strategies that I am going to present to you, however, I have leaned towards long-term rentals, basically because it generates cash flow to reinvest in new projects, and there is also the valuation, which is an important factor in the long term, but in the end, the important thing is that the investment model you choose adapts to your own needs and tastes.
1. Long-term rental
This type of investment in real estate is one of the best known and carried out by investors in the real estate market, since as long as there are families and individuals who need a place to live, it will always be relevant, and it also guarantees a constant income for the duration of the leasing contract.
If you go for this investment strategy you will need to focus on cash flow, and the best way to do this is by buying properties below market value, perhaps doing some repairs to increase their value, and preferably in locations that provide a high rental vs. purchase price.
But since it is not easy to find this type of property, it is very possible that it will take you some time and therefore it does not become a recurring investment strategy.
One point that you will have to define is if you are qualified or interested in managing the property, otherwise you will have to hire someone else or a company to manage the property for you, which would generate an extra monthly expense.
In addition to rental housing, there is also the option of commercial premises, which are usually more profitable but vacancy periods can also last longer than residential properties.
2. Short-term rental
This type of investment consists of purchasing a home in a tourist area, reforming it if necessary, and then renting it out for a short time, generally through online platforms such as Airbnb.
The biggest risk of a vacation rental is that it is a cyclical market, where in the high season it can generate good money but in the low season little is done. Still, to minimize this risk you could look for places with a constant rotation during the year, either by vacation or business tourism, perhaps in larger cities.
The cash flow from vacation rentals may seem incredible at first, but you have to be careful with administration fees, different expenses, taxes, and vacancies, so for this type of investment, it is important to ask yourself the following: How to manage the tenants? Is the location of the property appropriate? What are the legal regulations?
3. Buy, renew and sell (House Flipping)
There are many homes that come on the market at a fairly low price because they need comprehensive reform so that they can be lived in.
So a profitable real estate investment option, if you have the capital to buy this type of property, is to recondition it to increase its value considerably and sell it above market value, thanks to its new aesthetic and design features, in such a way that a good profit is obtained in the purchase and sale operation.
It is important to take into account that although it is a profitable and relatively quick investment, it requires a good amount of money, knowledge, time, and dedication, since you must find offers, manage contractors, keep track of the accounting and sell the properties, therefore you must have some knowledge on the subject or advise yourself very well so as not to waste money and time.
Many people who are engaged in this business specialize in obtaining information on daciones en pago or auctions, so that they can buy the properties at lower prices than the market average.
It is not a widely used strategy but it is becoming increasingly popular among real estate investors looking for high returns in a short time and with low risk, it is also an excellent way to learn about the real estate market and acquire negotiation skills.
It consists of obtaining properties that sell below market value, an agreement is made with the seller to obtain it under contract and immediately sell it or transfer the sale agreement to a final buyer, obtaining a commission profit that is often a percentage of the total cost of ownership.
Ultimate buyers are often real estate investors who prefer not to waste time identifying discount properties or negotiating with sellers, so the wholesaler acts as a go-between helping investors find and close deals.
5. Your personal residence
Some may not consider a personal residence a real estate investment because it’s not generating income or cash flow, but I’m not sure if that’s the case if you ever plan to sell it since you’re saving money on the one hand of a rental and on the other is the appreciation of the property, which you can increase if you buy the property below market value and improve it to increase its value.
Additionally, you can refinance your home and take out the money you used to buy it and maybe something else, and use that money to buy another investment property and thus increase your capital.
Another option for extra profit if you buy a multi-family property is to live in one unit and rent out the others, so you could earn money every month while living rent-free.
6. Real Estate Trusts (REITs)
When investing through a REIT (Real Estate Investment Trust), is done through a real estate fund that buys, manages, and sells real estate, and distributes its income mainly as a result of leases and the appreciation of the assets of the briefcase.
REITs are an easy way to invest in real estate that you would not have direct access to, but it is the fund that decides what to invest in and takes care of all the management. This option offers a number of advantages for investors:
– A diversified portfolio of real estate assets with first-class tenants.
– A professional and specialized administration.
– Good profitability with low volatility.
Buying real estate expecting its value to rise is just speculation, which is a risky practice but in some cases, it can work if the investor knows in advance that something special is going to happen in the place where the property is, something that could increase the price drastically, for example, the construction of a shopping center, a new road, etc.
The biggest risk of this real estate investment strategy is managing to hold the property for several years and losing money every month, where in the end the investor may be forced to sell the property in a declining market and lose even more money.
Crowdfunding refers to collective financing, it is a relatively new business model but it is gaining strength. It consists of several investors coming together to carry out real estate projects that they could not do if they invested separately.
Normally crowdfunding is done through a real estate platform on the internet, where all the information is included and all the actors come together. This model allows you to be an owner without investing large sums of money.
Like any investment in this, there are risks, but at the same time you can obtain good returns, so I suggest you investigate and know the characteristics and conditions very well before investing, on the other hand, a good practice in Crowdfunding is to distribute the investment in various projects.
Foreclosures begin as mortgages, this means that the buyer of a property acquires it with a loan which must be paid in a certain time, but if this person does not make the payments for a specific time then the lender will try to recover their money. through the sale of the mortgaged property and will be part of the auction houses.
These sales of houses in foreclosure offer a great opportunity for investors since they seek to sell the properties quickly in some cases at 70% of their market value, however, you have to be very careful and get very good advice to know the history of the property, its physical conditions and detect the debts that the property may have.
The entities in charge of these auctions publish the basic details of these offers, so it would be best to try to get to know the property at least from the outside to get an idea of its condition and its characteristics, and thus know if it could be a good deal. or not, later consult the acquisition process and make sure you have the full money since the judge gives a short time to pay the property in cash.
10. Build and develop real estate projects
The development of real estate projects is where the greatest profits are usually obtained, it is a risky process but satisfying if it is executed successfully.
The process of developing real estate projects requires a lot of knowledge in various areas, such as finance, engineering, urban legal, commercial, and project management, among many others, as well as a team of professionals in each area.
Basically, the role of the developer is the planning of a real estate project, which consists of preparing the business plan, securing financing sources, coordinating the marketing and sales strategy, supervising the construction, and coordinating the deliveries of the properties, in other words, it is the conductor who brings together the talents and makes it all happen.
As you could see, there are many ways to invest in real estate: House Flipping, long-term rentals, short-term rentals, REITs, Crowdfunding, etc.,
So if you are a beginner in this business, my recommendation is that you start with a little strategy. Risk and you are exposing yourself to others that you may find more attractive and convenient for you.
The most important thing to keep in mind, whatever your real estate investment strategy is the secret to real estate investment lies in buying, not selling!
The key is to search for and negotiate properties that you can acquire below market value since in the end the sale value is basically set by the market and you don’t have much control there.
I hope you liked this article and that you learned something new, and if so, please help me share it. Thank you very much! And don’t forget to check out some of our properties with a high return on investment.