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There are tons of different real estate investment strategies out there. RealEstateSideHustles.com just published a list of 18 Different Ways to Invest in Real Estate. 18!
And that got us thinking…what about the newbies? If you’ve never invested in real estate before, which real estate investment strategies would be a good fit for you?
So today we have 5 clever real estate investment strategies, perfect for newbies! Who’s ready to build a real estate empire?!
But First…Why Invest in Real Estate?
We’re a generation of renters. Most of us move around quite a bit and want the freedom to move from rental to rental. And most of us are saddled with student loan debt and are a little freaked by the idea of adding another couple hundred thousand dollars of debt for a house. Then there’s the expense. Property taxes, insurance, maintenance…
And yet, real estate is still well worth the investment. Here’s why:
1. You need a place to live when you’re old.
Do you really want to be paying rent forever? Can you even afford to?
Try to imagine life after retirement. I know it’s forever away, but try. Once you retire, you’re on a fixed income, living off your retirement savings and (fingers-crossed) a little social security money. Your rent continues to go up year-after-year, but your income after retirement doesn’t. How much would it suck to have to move to a crappier place when you’re 80 because you can’t afford the latest rent increase?!
And yeah, maybe you enjoy working and don’t plan to retire. Sad fact: your health might not give you a choice. If you’re not physically or mentally able to work, what then?
That’s why you need to own a place when you retire. Preferably a place that’s totally paid off so you’re not even making a mortgage payment.
But what if you want to retire abroad? Cool! Sell your place so you can pay cash for your new place abroad and still live rent-free and debt-free! Or maybe you want to spend your retirement living in an RV and seeing the country? You got it! Sell your place to buy your RV and buy gas for years of adventure!
Your retirement may be decades away, and live for today, or whatever, but failing to own real estate at retirement will be a giant regret for our generation.
2. Renting out a real estate investment property makes you money in 4 different ways.
Sound too good to be true? I thought so. Until I read Gary Keller’s Millionaire Real Estate Investor. He showed me the four different ways to make money on each property. Let’s list ’em:
1. Appreciation
You hear stories of people who bought a house in LA in the 70s for $40,000, and now it’s worth $1,500,000. That’s appreciation in action.
The real estate market will always have ups and downs. But over the long-term, the market as a whole will always trend up. If that statement is ever untrue, our entire financial system has collapsed, and we’re living through the apocalypse, so you have bigger problems than property values.
2. Renters are paying down your debt
If there’s anything better than paying off debt, it’s having someone else do it for you! Under the right conditions (which are the only conditions under which you should invest in a rental property!), your tenants are paying rent that completely covers your mortgage payment. They are paying off your debt for you!
3. Renters are also putting money in your pocket
It’s not enough for your renters to pay down your debt. Their rent should also cover all additional expenses and still put money in your pocket.
Real-life example:
The mortgage payment (including taxes and insurance) on my house in LA is $2,280.71/month. And I’m able to charge $3,200/month in rent. Ta-da! That’s $919.29 of passive income every month! And what happens when the mortgage is paid off?! I’ll be making a few thousand dollars every month.
4. Tax breaks
The US government decided a long time ago that homeownership was a good thing for the economy. So they wrote tax breaks for homeowners into the tax code. You’re saving money on your income taxes simply by owning real estate. And a penny saved is a penny earned.
Owning real estate requires an investment of time, money, thought, and energy. But these killer benefits make real estate investing a no-brainer. So let’s discuss those real estate investment strategies for newbies to help you get started asap!
5 Clever Real Estate Investment Strategies for Newbies
Here are the newbie-friendly real estate investment strategies in no particular order…
1. House Hacking
House hacking is when you rent out part of your home to help offset the cost of your investment.
There lots of different ways to do this:
- Rent out storage space on the property.
- Find a renter for the spare bedroom.
- Rent out the casita (you could even build a casita on the property to rent out).
- Buy a duplex, triplex, or fourplex instead of a single-family home. The rent from the other unit(s) could completely cover your mortgage payment, so you’re essentially living mortgage- (and rent-) free!
Key benefits of house hacking
Aside from the income, house hacking is great for teaching newbies the basics of property management. You’ll be able to learn about rental contracts and tenant screening first-hand. Plus you’ll be on-site, so you’ll be able to address maintenance issues or tenant issues immediately. And you’ll be able to keep a close eye on your investment.
The downside to house hacking
You still have to come up with the initial investment. A down payment equal to 20% of the purchase price was the old standard, but many lenders are willing to accept less than 20% under certain conditions. You might even qualify for an FHA loan with as little 3.5% down!
The other big downside is that you’re super available to your renters since you live on-site. That doesn’t leave much room for professional distance. Of course you could always decide to move out later and turn the whole property into an income-generator.
2. Live In, Then Rent
Live in, then rent is my personal favorite of the newbie real estate investment strategies. It’s perfect for those of us who like to move every few years. And it’s how I started my small real estate portfolio.
Basically, you buy yourself a home (careful to choose an area where the rents exceed the costs of ownership), and you live there for a couple of years. Then when you’re ready to move, you rent that house out and buy a new house in your new area.
Key benefits of live in, then rent
Since you’re purchasing the property as your primary residence, you’ll probably be able to qualify for an FHA loan with a low down payment. Which is awesome because you typically need a 20-30% down payment for an investment property. You’re basically buying investment properties on the better primary residence terms!
And, unlike with house hacking, you don’t have to share a property with your renters.
The downside to live in, then rent
You need to be good with your money. If you’re going to buy a new property every 3-5 years, you need to be constantly saving money for your next down payment. But again, since you can get a low down payment on primary residences, you’re able to leverage a lower investment to buy income-producing assets.
Since you won’t live on-site, you won’t be able to keep a super close eye on the property. Make sure to do a thorough renter screening to find reliable and responsible tenants!
3. Live-in Flip
If you’ve ever watched HGTV, you know about flips. Buy the property, fix it up, resell it at a much higher price.
The problem with those flips is that they have to be resold quickly. Every day the house sits vacant, the flipper is losing money. These flips are risky because they rely heavily on market conditions. If your market slows mid-flip, you could be SOL.
The better option: the live-in flip. Instead of flipping the property in a matter of months, you’re going to live in the property for a couple of years, taking your time to leisurely remodel the house.
Key benefits of live-in flips
You get the low down payment options since the house will be your primary residence. And you don’t have to deal with any renters ever.
Plus, you’ll save money by doing the remodel work yourself since you’re not in a rush.
The downside to live-in flips
You need to cover the down payment, closing costs, plus the cost of the remodel. But that might be ok since you’ll be able to take your time doing the labor yourself, and you’ll be able to space out the remodel costs over the few years you live there.
The bigger concern is the market. Any time you’re flipping, you’re counting on the market to be good when the time comes to sell. Buy low, sell high, right? Well, if the market happens to be on a down-cycle when you want to sell, you might be stuck. You might need to wait out the downturn and keep the house until the market rebounds.
4. The BRRRR Strategy
BRRRR stands for Buy, Remodel/Rehab, Rent, Refinance, Repeat.
You buy an under-priced fixer using short-term financing, remodel the property, rent it out, and once the property is stable, you refinance for a longer-term mortgage, the goal being to cash out as much of your original investment as possible so you can repeat with another property.
Key benefits of BRRRR
When done right, you can build a sizeable real estate portfolio with minimal upfront capital!
The downside to BRRRR
The downside to minimal capital is that you’re leveraging a whole lotta debt. Now, we love smart debt at Savings and Sangria. I’m actually over $800,000 in debt right now, and I’m cool with it. But it is possible to be over-leveraged. Once you get a handful of properties in your portfolio, it’s probably time to focus on building equity in those properties by paying down some of the debt before jumping into another deal.
5. Investing Without Buying Property
If the idea of buying property feels like too big a step for you, consider real estate investments that don’t require buying your own property.
There are actually lots of ways to invest in real estate without technically buying a property. Ways like:
- Real Estate Investment Groups and Crowdfunding
- REITs
- Mutual Funds and ETFs
- Real Estate Notes
- Hard Money Loans
- Tax Liens
Each of these are different; they all have their own strengths of weaknesses. But they’re worth looking into! You can start investing through some of these real estate investment strategies with as little as $500.
For more info on these real estate investment strategies, check out 18 Different Ways to Invest in Real Estate. Oh, and we’ll link to some helpful resources at the end of this post for anyone who wants to do a deep dive!
Key benefits of investing without buying property
You can get started with a comparatively small investment amount. And you avoid all the hassle of actually hands-on owning property.
The downside to investing without buying property
You do miss out on some of the satisfaction that comes from owning property. When you buy your own property, you have something tangible. With these real estate investment strategies, you maybe just get an account statement every once in a while.
Real Estate Investment Strategy Resources
Ready to learn more? We’ve got some killer resources to teach you all about different real estate investment strategies:
The Millionaire Real Estate Investor (by Gary Keller) is hands-down my personal favorite book on real estate investing. Simple enough for total newbies to pick up, but advanced enough to help you build a long-term plan to serve you for decades to come.
The ABCs of Real Estate Investing (by Ken McElroy) is awesome for anyone totally new to real estate investing because it presents several concepts for creatively making money through real estate.
What Every Real Estate Investor Needs to Know About Cash Flow (by Frank Gallinelli) is the best book I’ve found for investment calculations. If you’re a numbers nerd (slowly raising my hand), this will give you calculations to fall asleep pondering. And if you hate calculations and financials, this book will teach you to understand them, and maybe even appreciate them.
And if you’re looking to invest in real estate without actually buying property, here are a few books to help you get started:
- Note Investing Made Easier: How To Buy And Profit From Distressed Mortgages by Martin Saenz.
- The Complete Guide to Investing in REITs — Real Estate Investment Trusts: How to Earn High Rates of Returns Safely by Mark Gordon
- The Little Book of Common Sense Investing by John C. Bogle (covers general investments, including Mutual Funds and ETFs, which you can get specifically for real estate).
Feel Like Sharing?!
Have you tried any of these real estate investment strategies? Our S&S Community would love to hear about your experience! Leave us a comment below.
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