Real Estate Investing: How Lucrative Is It And What Strategies Can You Use?
Real estate investing doesn’t necessarily have to be limited to those with the big bucks. With the right investment strategy, you too can pursue real estate investing. Of course, the bigger question here is: Is it worth it? What type of returns can you expect? How much risk are you taking on? Can it work in the long-term, or do you only get one chance?
Read on as we discuss how profitable real estate investing can be and whether you should consider becoming a real estate investor.
Real Estate Investments: How Much Can You Earn?
Real estate investments are highly attractive for investors interested in generating passive income. According to the National Council of Real Estate Investment Fiduciaries, the average return on investments in residential real estate is 10.5%. This is significantly higher compared to other options. For instance, if you choose to open a savings account, then your average return would be a mere 0.06 percent.
Real estate investments also tend to make for relatively safe investments. Compared to the stock market, these tend to be less volatile and you don’t have to worry about your assets losing value overnight.
Popular Real Estate Investments For New and Seasoned Investors
Choosing the right investment strategy depends on numerous factors. These include the amount of capital required, your risk appetite, and your required rate of return. Let’s review some of the most common real estate investment strategies that you can master.
Buy and Hold
This investment strategy involves buying a property and holding onto it until you can sell it again at a higher price. Maintaining a positive cash flow is the key to executing this real estate investment strategy properly. You don’t just account for the initial price at which you purchased the property when selling it. Instead, you also need to consider the costs incurred while you held onto the property. Some examples include maintenance costs, utility bills, etc.
You can also generate short-term cash flow by putting the property on rent until you are ready to sell it. This allows you to boost your passive income, as well as your overall rate of return on the investment. Moreover, you can use the rental income and pay off the mortgage on the property.
Fix and Flip Investing
Another excellent investment strategy, fix and flip investing involves buying a slightly rundown property, making repairs to it, and then selling it at a higher price.
There are two ways to utilize this investment strategy effectively. One, you purchase a property below its current market value because it is in financial distress. Two, you purchase a property with issues in its design, condition, or structure that can be remedied.
One of the biggest advantages of flipping properties is that you can realize quicker gains. It is also a potentially safer investment. However, you may have to bear high costs in repairs and taxes.
Bear in mind that flipping a property can be a significant undertaking. If you have a day job, you will have to invest your spare time into remodeling and renovating the property before you can sell it.
BRRRR Investing is somewhat similar to fix and flip and buy and hold strategies. It stands for buy, remodel, rent, refinance, and repeat. You begin by buying an undervalued property using alternative financing. This is followed by renovating the property so that its value appreciates.
When you have finished remodeling, the property can be put on rent to produce rental income. During this period, you can make use of a cash-out refinance and pay back your lender.
The money that remains from the cash-out refinance can be utilized as capital and directed toward investing in a new property. By repeating this process over and over, you can build a significant portfolio comprising of real estate investments. What’s more, you use very little of your money in the process and can rely on alternative finance instead to generate capital. This can lower your risk significantly.
How Do You Begin?
Venturing into the real estate market can be a risky affair if you don’t know what you are doing. To remedy that, we recommend taking educational courses on real estate investing. These can help you familiarize yourself with the potential pitfalls of the real estate market, lower your risk, and maximize your returns. You can find out how to correctly value a property, how to finance your investment, and how to sell it to generate a profit.
Whether you are new to the real estate market or a seasoned investor, our education packages provide a wide variety of useful insights that can help you understand the ins and outs of real estate investment and make better choices.
We also recommend attending this FREE webinar to discover how other investors have applied our strategies to earn their desired returns!