12 Ways to Invest in Real Estate
I started learning about real estate in December of 2020, I still remember the first eBook I’d read that changed my course of action for the foreseeable future. This eBook simply highlighted how any person can build wealth through real estate. Little did I know at the time there’s so many ways to go about doing so. To make it easier for you to get started on your real estate journey, I’ve created a quick how to guide on different ways to invest in real estate.
Short Term Rentals
These are vacation rental homes that currently have the highest rate of return in our market. Think about homes on Airbnb, VRBO, Booking.com, etc. Most investors leverage a 10% vacation home loan to purchase/fund this type of property. This means putting a 10% down payment from the full purchase price and taking a loan for the other 90%. I currently have a short term rental. One thing to consider is furnishing your short term rental and the marketing that goes into it. Nightly charges on this type of rental vary by season, guests, and comps in the area providing an unreliable way to estimate your revenue and months with a HUGE upside and some months with a negative cash flow.
Check out: https://www.airdna.co/ for rental rates and historical data on the region you’re looking to invest in.
Long Term Rentals
These are probably the most common type of rentals. Think about your college apartments or any time you’ve signed a 1 year lease. That is a long term rental. You’re paying a fixed monthly amount to the landlord. As an investor, this type of investment is the most stable, reliable, and consistent that leads to long term wealth. There’s not a lot of major upside but there’s not a lot of major downside either. Personally, this is my favorite strategy as a ‘passive’ investor. To make it even more passive, you can hire property managers to run the day to day operations for your rental.
Mid Term Rentals
Mid Term Rentals have been an up and coming market mostly geared towards travel nurses and remote working tech professionals. These are 3-6 month leases many people have started looking into especially since the pandemic. As an investor, they’re in between the short term rental chaos + higher returns and the long term rental stability. It’s a great strategy to look into specially if you’re looking to buy a property near a Hospital or popular destinations for tech workers.
Fix & Flip
Fix & Flip is probably one of the most ‘active’ form of real estate investing. This involves finding distressed properties and fixing them up for a profit. This is also the one of the fastest ways to build quick wealth. You’ll probably see a lot of stories on how people bought a place for $90k, fixed it up, and sold it for $120k. That’s a pure $30k profit right there, minus the cost it took to renovate the property. This can also be a great beginner strategy even though it sounds expensive for 2 reasons:
As beginners and someone with little capital to put into a property, you can do most of the work yourself. I’ve had friends learn to put tiles, paint walls, add door frames, all themselves, reducing the labor cost and learning along the way.
There are loans to help with both sides of this strategy. There’s something called the 203(k) loan allowing investors to have low interest rates and have a bank fund not just the down payment but also the renovation cost for the property. Other banks also offer ‘fix & flip loans’ you can simply Google.
Commercial Real Estate
Multifamily (Small vs Large)
The first type of commercial real estate are multifamily properties. These are your apartment buildings, condos, etc. Typically, a small multifamily is less than 5 units (which can still be considered residential) and a large multifamily is 5+ units (which has to be considered as a commercial investment).
Retail
Investing in retail buildings are the plazas, office buildings, restaurant buildings you see in your local hometown. These are larger projects typically involving multiple investors. I would not advise starting in retail commercial real estate as your first investment unless you have previous knowledge or work at a firm where you can learn.
Wholesaling
Wholesaling is a short term real estate strategy (also great for beginners) that refers to an investor purchasing a property with the right to assign the contract to a another buyer. What typically happens here is that wholesalers become really good at finding deals that are under-valued or not on the market. They purchase the property with the right to re-sell it and then find a buyer that’s willing to pay the higher price for it. A quick example is this: A wholesaler finds a property for $40k and sells the right to purchase it to a buyer who buys it for $70k. The wholesaler then profits the difference in purchase price amount.
Buy and Hold
Buy and hold refers to purchasing a property and holding it for the long term. Historically speaking, the property is prone to appreciation as well as rent gains over 30+ years. If you are looking to build long term wealth, this is a great strategy to simply buy and hold any property you buy for as long as possible.
BRRRR
BRRRR refers to Buy, Rehab, Rent, Refinance, and Repeat. This strategy is combining a fix & flip along with a buy & hold strategy. The goal is to find a distressed property, rehabbing it to fix it up, renting it out to tenants, and refinancing it to pull cash out from the equity you’ve built in the property. The last ‘R’ is for repeating this process over and over again :) This is one of the smartest investment strategies. Although I personally have not done this, I’ve met a lot of people find success through this strategy.
House Hacking
If I didn’t live in a high-cost of living area, this is the #1 thing I would do to get started in real estate. House hacking is THE best way for people to get started in investing. This refers to purchasing your primary residence and renting out a portion of it to tenants. It could look a few different ways. You could also have a single family and rent by the room. You could purchase a quadplex and the other 3 units. The benefit of this method is instead of putting 20% down like most other investments, you can put down as little as 3.5% down through an FHA loan. The caveat here is that this has to be your primary residence and you have to live in the property yourself to qualify.
REITs
REITs or real estate investment trusts, are companies that own or finance income-producing real estate across a range of property sectors. Investing in REITs is like investing in stocks. It’s a simple ticker symbol through your brokerage account.
Syndications
Real estate syndications involves a group of investors who collectively raise capital to purchase commercial real estate or build a new property. The capital that’s being raised is through individual investors like you and me. These syndications can allow you to invest anywhere from $5k to $100k in an investment that you don’t have to actively manage. It’s a great way to build wealth especially if you don’t want to personally get involved in the process. The big thing to note here is trust. As syndications are a giant partnership, you want to ensure you trust the group you’re putting your money with.
Rental Arbitrage
Rental Arbitrage is an investment strategy where you would rent out a long-term rental on a short-term basis. Typically, you would will sign a long-term lease agreement, let’s say on an apartment, and then list that property on various vacation rental platforms such as Airbnb or VRBO to generate a higher profit. This strategy became really popular amidst the pandemic in larger cities. Note that this is not an investment vehicle to build equity since you wouldn’t technically own the apartment or unit you’re renting out. This is for short-term cash flow you could put into a future investment.
I really hope that helps you get started with your real estate journey!! It took me an immense amount of time to learn about all of these different ways. The last thing I’ll add is this: there’s a million ways to be a millionaire in real estate. Don’t let analysis paralysis get the best of you. Pick 1-2 strategies that work for you and go after it with 100% of your effort.
If you want more explicit thoughts and recommendations based on your situation, feel free to book a call with me and I’m happy to share more about which ones I’ve leveraged and what makes sense in your situation.