Published by Entrepreneur.com | December 16, 2022
All real estate investors know there isn’t a single strategy for investing.
As a real estate investor, you might encounter varying advice about investing on the internet, social media and from other investors. Some of these sources may claim they know best, but there are many effective strategies for investing in real estate. There isn’t a single strategy that is the best approach for every landlord. In fact, your real estate investing strategy should reflect your personal long-term goals, available resources and current circumstances.
Plus, your investing strategy can — and should — change as your needs change. The success of your rentals isn’t tied to one investing strategy, but rather the skills you’ve built, the tactics you’ve learned and your ability to shift between different strategies when needed.
Below are six great real estate investing strategies you may use at various points in your investing career:
1. House hacking
House hacking is a popular investing strategy wherein you buy a property, live in half and rent the other half out. The rental income you receive helps reduce your monthly mortgage payments on the property.
This strategy works well with duplexes and other multiplexes because you can maintain a clear division between your and your tenant’s spaces. However, some investors also rent out a basement or bedroom from their single-family home (SFH).
House hacking is a trendy and widely used investing strategy for several reasons. For one, it’s an excellent way to transition to real estate investing for new landlords. This is especially true if you learn to manage your rented unit or bedroom with property management software. Software helps you carefully track your income and expenses while you establish your business. Another benefit of house hacking is that it allows you to get a residential mortgage because you’ll be living on the property as well.
In the long run, this strategy’s aim is to make it possible for you to move out and transition the property into a full-blown rental.
2. BRRRR deal
BRRRR investing is another effective strategy made popular by Brandon Turner on Bigger Pockets. BRRRR stands for buy, rehab, rent, refinance and repeat:
- Buy: Buy a property at below-market value.
- Rehab: Renovate and improve the property by adding value.
- Rent: Rent out the property to cover the mortgage.
- Refinance: Get the property reappraised, then use cash-out refinancing to secure an advantageous mortgage.
- Repeat: Use the capital you recovered from the deal to invest in more properties.
With BRRRR, the idea is to capitalize on a property others may have overlooked due to its low face value or apparent lack of potential.
To use the BRRRR strategy, target properties that are sound investments despite needing some work. Focus on improvements that increase value: installing hardwood flooring, adding extra bedrooms or remodeling kitchens and bathrooms. The value added from these improvements will improve your property appraisal and help you secure more funds to invest elsewhere.
3. Wholesaling/driving for dollars
Wholesaling is a strategy many investors use to capitalize on great deals. In this strategy, you find a property that will make a good deal, facilitate a sale between a buyer and seller, and then collect the difference between the seller’s price and the amount the buyer pays.
To succeed with this strategy, you need to be informed about which properties are currently on the market. You can use popular listing sites, the Multiple Listing Service (MLS) or a strategy known as “driving for dollars.” This involves manually searching neighborhoods for properties that look promising.
One downside of wholesaling is that you need strong marketing and sales skills. If you don’t have this skill set and don’t want to work to acquire it, wholesaling might not be for you.
Click here to continue reading and learn about three additional strategies.
