Which Real Estate Strategy is Right for You?

No YouTube video or book can give you a definitive answer of which real estate investing path to take. We are all unique, and the best real estate strategy for you is not necessarily the right strategy for the next person.

It took me a lot of research, self-evaluation, trial and error, and advice from experts to figure out my sweet spot, Big City BRRRR-ing with a Section 8 twist. It was important to me get maximum cash flow and appreciation, AND to have great tenants that pay on time and stay for years (download my FREE ebook, “How to Find Great Tenants that Pay on Time and Stay for Years.”)

Now of course, you might have different or added goals. Here are three questions that can get you a little closer to your ideal strategy.

1. Which asset class do you want to invest in?

Real estate is not just houses or apartment buildings. Besides residential real estate, commercial real estate is also a broad category. From office buildings, industrial parks, and strip malls to multi-family properties, data centers, storage facilities, and hotels. Then there is also land, which can be categorized as residential, commercial, agricultural, and forest land.

You might pick an asset class based on your background or previous experience. It should also be based on research, taking the time to observe and analyze your local real estate market, networking with other investors at REIA’s and online groups, and asking questions.

2. How do you prefer to make your money?

Investing in real estate takes many different forms, but there are essentially two ways to make money: appreciation and rental income.

Appreciation is the increase in a property’s value over time. Appreciation is not guaranteed, but generally, real estate today is worth more than it was 5, 10, or 20 years ago. Then there is forced appreciation which is when an investor makes improvements to a property to make it more valuable. For example, a rundown house is worth more after it has been renovated.

One type of real estate investor is the “fix & flip” investor who purchases a property, forces appreciation by improving it, and then sells it for more than they paid for it. The objective is that the
eventual selling price of the property is higher than the purchase price of the property, plus the renovation and holding costs of the property.

Rental income is the second way to make money as a real estate investing. A “buy & hold” investor will purchase a property, possibly fix it up a bit, and then offer it to tenants for a monthly rent. This form of investing is only profitable when there is a positive cash flow, which means you still have some money in your pocket after you have covered ALL the costs of owning and maintaining the property. Bear in mind, a buy & hold investor will also make money from appreciation when they one day sell a property.

3. How Passive Do You Want Your Real Estate Investment to Be?

Deciding whether you want to be a passive investor or an active investor is an additional consideration in deciding which real estate investing strategy is right for you. It will depend on how much time you have to invest in your real estate investing journey and how much time you want to invest. Fix & flip or buy & hold investing tend to involve a lot of work which implies that they are always active forms of investing. However, many tasks can be outsourced and can become quite passive. For example, a buy & hold investor might use a full-service property manager to manage their rental properties. A fix & flip investor can partner with someone with skills in construction and renovation. For investing to be even more passive, you can consider investing in paper securities such as REITs or shares of publicly listed real estate companies. Crowdfunding and property syndications are also options for passively investing in real estate.

As a general rule, investing in real estate will cost you time and money in different proportions. You will need money or access to credit to purchase a property or participate in an investment, but you have a choice in how much of the work you want to do.

Your real estate investing strategy must be right for you!

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