Real estate is probably one of the most popular wealth-building investment ideas today. From the unbelievably huge property appreciation margins to friendly tax rates, and the numerous ways of generating income, a real estate is definitely an ideal option for creating generational wealth. If you do it right, you can reap big in the long run. A 2017 study showed that 150 years of real estate investment can yield up to 8% profit on average.
This venture is pretty promising for investors looking for lasting financial security. Given that it can be a source of consistent cash flow, you can choose to reinvest some of your profits and expand your portfolio. However, jumping into property investment without a sound plan can be a recipe for great losses and disappointments.
Generating wealth through property investment is subject to shrewd property choices and a foolproof strategy. A good strategy will help you avoid significant losses by minimizing potential risks. But what really is a great property investment strategy? Which one works best? Will one strategy work or do I need to combine several? Well, it depends on your situation, availability, budget, and personal goals.
To avoid confusion and align yourself for success, get your real estate investing strategy right from the beginning and use it to prepare and execute your investment plan. Here are the top real estate wealth-building strategies
to start you off.
Buy-and-hold real estate can work for both short-term and long-term goals. It’s one of the most straightforward property investment options in the industry. It entails buying a property such as an apartment building, vacation rental property, a commercial property, etc., and holding it for some time as you wait for it to appreciate in the future.
Often, this strategy works by forcing value addition through rent appraisal, remodeling, reduction of expenses, or a combination of all. The trick here is in selecting a viable neighborhood to invest in, identify the right type of property, and ensuring that both of your choices make financial sense.
You can choose to make your buy and hold real estate investment either an active or passive, regular income source. For a passive income source, you can decide to rent out your property for some extra money for a short period or for the long term. Otherwise, you can keep it uninhabited until a good deal comes along.
The buy-and-hold real estate investment strategy
is an excellent way to grow your portfolio effortlessly. As soon as you are done paying for your first property, you can use it as collateral to acquire a second one. It goes without saying that the more real estate properties you have, the faster and easier it’ll be to acquire new ones.
Regardless of the unavoidable challenges in the housing market, property prices will always bounce back due to the ever-increasing demand. Given that land is a very limited resource, the buy and hold strategy allows you to build wealth without much effort - thanks to natural appreciation.
The good news is that the buy-and-hold property investment strategy is an ideal starting point for newbie real estate investors. You don’t need lots of skill or knowledge as long as you can learn, research extensively on the real estate market, and invest in the irreducible minimums of the trade.
The fix-and-flip real estate investment strategy
generally involves acquiring an investment property in a distressing condition for a bargain, doing the necessary repairs, and selling it for profit. It’s a short-term property investment strategy ideal for newbies in the industry as it provides them with a chance to test the waters and decide if they want to be in it for the long term.
Literally, the strategy seems pretty simple, but is it? It’s quite challenging to find properties for sale at a cheap price and make them economical, but quality repairs will raise the property's value to enable you to gain significant profit. You must strive to keep expenses under check – and there are numerous. From utility costs to financing costs, insurance, legal fees, and taxes, just to mention a few, you must be at the top of your game to avoid making a costly mistake with this strategy.
If done right, this real estate investment strategy can produce a great ROI (Return on Investment). From utility costs to financing costs, insurance, legal fees, and taxes, just to mention a few, you must be at the top of your game to avoid making a costly mistake with this strategy. Basically, your goal from the beginning should be to reduce liabilities and maximize your profits.
This strategy works best in areas where demand outdoes supply. An area where the housing market moves fast and property values are ever-increasing. While the competition for fixing and property investment is tough, you can find great deals through wholesalers, referrals, auctions, MLS, etc.
Rent-to-own is a real estate investment strategy whereby you look for tenants to your property who are interested in buying it in the future. This is the best option for those looking to own a home but are hindered by a bad credit score or lack the required funds to make a full deposit.
As the property owner, you set the buying price before renting it out. The tenant must part with a predetermined percentage of the cost before setting in, which becomes a deposit (down payment) if they want to buy the property at a specific time in the future. Basically, the tenant will be paying the usual rent in addition to the preset amount you agree upon. The additional amount goes towards offsetting the purchasing cost. This strategy is great at creating a reliable cash flow and building long-term wealth.
With a REIT, an investor buys into the investment the same way you buy stock shares. When you buy property investment shares from a REIT, you’ll earn regular dividends in the short-term and also gain in the long-term when you decide to sell them. The property is technically owned and financed by the REIT (Real Estate Investment Trusts) company. They also make decisions on where to buy and what kind of property to buy.
Given that REITs are required by law to pay 90% of their taxable income to investors, it’s definitely a great source of income. You also don’t require any real estate experience or knowledge when investing in REITs. All you have to do is buy your shares, sit back, and wait for your dividends.
We all know real estate can make you some serious money. However, choosing a practical real estate investment strategy will help you establish a fruitful set of properties and achieve financial freedom as you build generational wealth with ease.