If you plan on investing in residential real estate, you will fall into one of these four strategy categories:
- Fix and Flipping
- Creative real estate investing
- Buy and hold
Fix and Flipping
Fix and flipping is the most popular strategy for real estate investors. You buy a property at a low market price, renovate it, and sell it for a profit. Most of the time, the property may be distressed and requires a little, or a lot, of renovations and repairs. Once you’ve completed the renovations and repairs, you can sell the fixed up home for a higher price than you purchased it for. This is a popular strategy, because financing is much easier to obtain through private money or hard money lenders. While this strategy requires a lot more involvement, the turnaround time is quick and can be very profitable.
Wholesaling in real estate refers to the process of finding great real estate deals and getting paid to bring them to real estate investors. Wholesalers make money from the difference between the contracted price with the seller and the amount paid by the buyer. The ultimate goal of a wholesaler is to sell the home before the contract with the original homeowner ends. Real estate wholesaling is similar to home flipping, except there’s a much smaller time frame and no repairs or renovations are made. Wholesaling has fewer risks than fixing and flipping and requires less capital.
Creative Real Estate Investing
Creative real estate investing is the non-traditional method of buying and selling real estate. As the name implies, it is finding creative ways for investing in real estate without bank loans or big down payments. An example of creative real estate investing would be purchasing an abandoned property and reselling to another investor. It is a much riskier approach to real estate investing, and requires a great deal of knowledge of the real estate market.
Buy and Hold
One of the frequently asked questions for real estate investors is, should I sell or rent my fix and flip? You’ll find that most flippers will sell their fixer upper because it generates quicker income. However, if you’re looking for a longer term investment, buy and hold may be for you. Buy and hold is buying a property and holding on to it for an extended period of time. Investors will typically rent out the renovated property to help with financing. Buy and hold real estate will earn you short term gains and long term appreciation. You must have sufficient capital to buy and hold, and you must also do your due diligence.
It’s important to understand the different types of real estate investing strategies so you can pick which one is best for you. Real estate investing can yield high rewards if done right, but it's not without risk. Comment below and let us know which strategy has worked best for you.