Choosing Your Real Estate Investment Strategy

As an investor you use a variety of strategies. Choosing the right real estate investment strategy can impact your financial returns. Two of the most common strategies that you can use to make money are found below.

Buy and Hold Strategy

A common and simple form of investing involves the purchasing of property and renting it out. With this strategy, an investor attempts to create cash flow by collecting monthly rent. Additionally holding onto the property for a period of time until it can be sold for a future profit.

Advantages and Disadvantages of Buy and Hold Investing

One advantage is while renting the property out, the mortgage is paid down each month. In order to decrease your principal balance and increase the equity.
Just as important, understanding how to evaluate deals and opportunities. To put it differently, mistakes that we see new investors make involve buying bad deals. These newer investors just didn't understand how to properly evaluate a property.
Issues with this strategy include underestimating expenses, selecting bad tenants, and not properly managing the property. With proper education these costly potential mistakes can all be avoided.
Buy and Hold deals can usually be had when inventory is high, which creates competition and lower prices. When inventory is low, prices rise without much competition. During slow periods you may sell for a nice profit. Some investors elect to never sell a property, rather paying off the mortgage and living on cash flow.

The "Flipping" Strategy

The most popular investment strategy for making money is flipping. With popular cable TV shows promoting this real estate investment strategy, you can see why! The flip strategy is like the "buy low, sell high" method retail businesses use. Flipping a property consists of buying distressed property at a lower price, improving it and increasing value, and selling it for a large financial gain.

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"Flipping" real estate investment strategy

Most popular type of property to flip is single family homes.
Rule of thumb for house flippers is using the 70% rule. Buy a home for 70% of its current “distressed” value. Coupled with taking any rehab costs out. In other words, say a distressed property should be worth $100,000 if it were in good condition. Thus, it needs $20,000 worth of fixes and improvements. Typical house flippers will purchase the home for $50,000 ($100,000 x 70% – $20,000) and look to sell it for the full $100,000 improved value once completed. It's simply a rule of thumb, actual numbers must be verified and adjusted to make sure a successful flip deal exists.
Try to ensure maximum profitability and avoid months of expensive carrying costs. Buying, rehabbing and selling the property as quickly as possible can be key to profiting. Carrying costs include monthly bills like mortgage payments, taxes, utilities, other maintenance bills and possibly HOA (Home Owner Association) fees.
House flipping is just like a day job, it is not a “passive” strategy. When you stop flipping, you stop making money until you flip another property. Some investors choose to flip houses to financially support other long term investments and/or pay their day-to-day bills.

Never stop learning as a real estate investor

Hopefully you have a clearer understanding of the some different strategies that you can use to build wealth in real estate.

Don’t worry if you don’t know which niche and real estate investment strategy you want to pursue, it’s just the beginning! We can give you numerous tips and sources you can use to narrow down your plan. Learning and educating yourself on how to invest in real estate will take time. However, you'll gain a better understanding of the kind of investing you want to do.

You may be excited to start building wealth in real estate, but before you do, create your real estate business plan will make the difference between success and failure.