What Are the Top Real Estate Investment Strategies?
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A lot of investors turn to real estate investing for passive income and diversification. Real estate investing involves the purchase, ownership, management, rental, or sale of real estate for the purpose of generating profit. This is generally considered a good way to build wealth. However, with so many different strategies and approaches, it can be overwhelming to know where to start.
Regardless of the investment strategy, the primary goal of real estate investing is to leverage properties to generate income, either through rental income, capital appreciation, or both. Investors often look for opportunities where they can add value to a property or take advantage of market trends to maximize their returns.
Real estate often proves to be a lucrative investment. Investors can enjoy income in the form of monthly rent and appreciation, and it’s a good way to build a more diverse investment portfolio. It gives investors an asset that is not subject to the same economic influences as stocks and bonds. [1]
Each investment strategy in real estate offers its own set of advantages and risks. Remember that no investment is totally risk-free. So investors can easily find a strategy that aligns with their investment philosophies. Some investors focus on long-term strategies, aiming for steady rental income and appreciation over time. Others might specialize in flipping properties, buying distressed homes at a lower price, renovating them, and then selling for a profit.
In this article, we’ll explore the top real estate investment strategies that investors may consider. We will also talk about the best investment option for accredited investors looking to get into real estate investing.
Why Invest in Real Estate?
Before we dive into the different strategies, we will briefly discuss why real estate is such a valuable investment. Investing in real estate offers a multitude of advantages that make it an appealing option regardless of investing experience.
Firstly, real estate provides a tangible asset. This offers a sense of security and stability that you cannot get from other investment vehicles like stocks or bonds. Properties have inherent value and tend to appreciate over time. This potential for appreciation can result in substantial returns. They can even serve as a hedge against inflation.
Many real estate investments can generate passive income through rental payments, providing a steady cash flow and serving as a reliable source of income. Depending on the property, its location, and many other factors, it can potentially offer high returns. Real estate investing can offer robust long-term returns that are not entirely correlated with the stock market. [2]
We also mentioned the benefit of diversification which reduces risk by spreading your capital across different assets. The fact that there are many different investing strategies and options available is another advantage. Real estate investing offers versatility. Investors can use various methods to generate profits.
Real estate investors can even take advantage of tax deductions and benefits, such as depreciation and mortgage interest deductions, to maximize their returns.
With that said, real estate investing also has its own set of challenges. For example, real estate can be very illiquid especially in the short term. You need to be prepared for a big financial commitment because you will likely not have access to your funds for a long time when you use it to acquire real estate. Talk to your financial advisor and do your due diligence before committing your capital to an investment property. [2]
Now that we’ve covered the benefits of real estate investment, let’s explore the top strategies for success.
Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts (REITs) are companies that own and operate income-generating real estate properties. Investors can purchase shares in a REIT, which allows them to invest in real estate without the hassle of managing properties themselves.
This makes it a stand out investment strategy because investors get to invest in real estate without directly owning the property. It will provide exposure to the real estate market without the time and cost commitment that is normally associated with buying a property. [1]
These investment vehicles allow investors to invest in a portfolio of income-producing properties, ranging from office buildings to shopping malls, apartments, and more.
One of the key advantages of REITs lies in their requirement to distribute at least 90% of their taxable income to shareholders in the form of dividends, offering attractive yields for investors who want steady income streams.
Compared to traditional real estate investments, REITs also provide liquidity because they are traded on major stock exchanges.
Equity REITs are the most common type of REIT and they allow investors to pool their resources together to fund the purchase, development, and management of real estate properties. [1]
Buy and Hold
When it comes to long-term wealth-building potential, the buy and hold strategy is considered a timeless approach. This strategy involves purchasing a property and holding onto it for an extended period of time, typically with the intention of renting it out.
This approach is popular among long-term investors who are looking for steady cash flow and potential appreciation of the property’s value over time. When we say “long-term”, we are referring to the act of holding a real estate property for years or even decades. It is the opposite of the fix and flip approach. [3]
One of the key advantages of the buy-and-hold strategy is its ability to leverage the power of compounding. As the property appreciates in value, the investor’s equity grows, potentially allowing for refinancing or leveraging that equity to acquire additional properties.
Consistent rental income also helps cover mortgage payments and operating expenses through steady cash flow.
Additionally, long-term ownership offers certain tax advantages such as depreciation deductions. This further enhances the investment property’s return on investment (ROI).
In order to succeed with this strategy, it requires careful consideration of location, market trends, and property management. It also requires patience and dedication. Done properly, this can be a reliable method for building substantial wealth through real estate over time.
Fix and Flip
The fix and flip strategy involves purchasing a distressed or undervalued property, renovating it, and then selling it for a profit. Unlike the buy and hold strategy that may take anywhere from five to 30 years, this strategy takes much less time.
However, in order to succeed, this strategy requires a keen eye for undervalued properties and the ability to manage renovations and contractors effectively. Not only do investors have to find these properties with significant potential for enhancement, they also need to know how to improve it substantially so that they can resell it at a higher price.
This strategy also requires an understanding of renovation costs and timelines. Successful fix and flip investors meticulously calculate the expenses required for renovations, factor in the holding costs during the renovation period, and ensure the final selling price will cover all expenses while leaving room for profit. [1]
Having a reliable network of contractors and professionals is also crucial. They need to be able to carry out renovations efficiently and within budget. Once the property is renovated and upgraded, it is put back on the market, ideally fetching a considerably higher price due to the added value. [1]
So even though it’s a much quicker way to earn money in real estate, it’s not an easy strategy to pursue. You need to know what you are doing.
While fix and flip can be a lucrative strategy, it does come with inherent risks, such as unexpected renovation costs, market fluctuations, or extended holding periods. All of these factors can impact profitability.
Short-Term Rentals
Short-term rentals, also known as vacation rentals, have become increasingly popular in recent years thanks to platforms like Airbnb and VRBO. Now it can be considered one of the best strategies for real estate investors. [4]
This strategy involves purchasing a property in a desirable location and renting it out on a short-term basis to travelers.
Short-term rentals offer investors the opportunity for higher returns compared to traditional long-term rentals. Through certain platforms, property owners can make the most out of transient stays by tourists, business travelers, and other individuals seeking short stays. Airbnb, for example, has become synonymous with short-term rentals. [4]
This strategy also allows for flexible pricing. Investors are able to adjust rates based on demand, seasons, and local events. It even yields higher rental income per night compared to standard leasing arrangements.
However, successful execution of this strategy still requires efficient property management and strategic property selection. You should also understand local regulations in order to navigate the legal landscape effectively. [4]
The dynamic nature of short-term rentals presents an attractive investment avenue for those willing to adapt to market fluctuations and commit to diligent management practices.
Multifamily Syndication
For investors who want to enjoy the hands-off nature of real estate investment trusts combined with the steady cash flow and reliability of the buy and hold strategy, real estate syndication may be the right strategy.
Real estate syndication is a powerful real estate investment strategy that involves pooling financial resources from multiple investors to collectively purchase and manage real estate properties. While this can be done with any type of real estate, multifamily syndication is the most popular type because of the strong and consistent cash flow generated by these large properties. [5]
This approach allows investors to participate in larger real estate deals that are normally out of reach. Generally speaking, multifamily properties such as apartment communities are larger and more expensive—and therefore inaccessible to lone investors.
Even high-net-worth individuals (HNWIs) may think twice about purchasing a large multifamily real estate property all by themselves because of the huge risk involved. But with multifamily syndication, there are multiple investors involved, and they all split the risk amongst themselves by only providing a portion of the capital needed.
Syndication typically involves a general partner (GP), responsible for putting the deal together, creating the business plan, locating the investment property, and looking for investors who will participate in the deal. The syndicator takes on a more active role in the investment process. [5]
On the other hand limited partners (LPs) are the investors who have limited liabilities and responsibilities in the investment. They simply invest their money into the syndication and pay certain fees to get the investment property running. In exchange, they receive a stream of income from the property’s cash flow. [5]
Not only will the syndicator provide these disbursements, they will also handle property management, making this a true passive investment in real estate. The difference between this and REITs is that investors actually own a portion of the investment property. Therefore investors should do their due diligence and look into the investment property being offered in the syndication deal before participating.
The syndicator will take care of the property’s day-to-day operations, meaning investors do not have to take on the role of landlord.
Syndication deals are typically structured as limited liability companies (LLC) or limited partnerships (LP). Do take note that most of these deals are exclusive to accredited investors, meaning those who meet certain qualifications set by the US Securities and Exchange Commission (SEC). [5]
Work With BAM Capital for the Best Multifamily Real Estate Syndication Deals
For accredited investors who want to own multifamily real estate but do not want all the headaches that come with being a landlord, multifamily syndication is the ideal option. It is a passive investment, which means you do not have to worry about property management, maintenance, tenants, emergencies, rent collection, etc.
In a syndication deal, the syndicator will be making all the decisions. Make sure you are working with a syndicator you trust. This is where your due diligence comes in.
Although multifamily syndication is comparatively lower risk, you still want to choose a trustworthy syndicator with a track record for excellence. Work with BAM Capital.
Accredited investors love working with BAM Capital because this Indianapolis-based syndicator uses an award-winning strategy in multifamily syndication that creates forced appreciation while mitigating investor risk.
BAM Capital has a strong Midwest focus, prioritizing Class A, A-, and B++ multifamily properties with in-place cash flow and proven upside potential. [6]
Not only is BAM Capital a leader in its industry, it is also a vertically-integrated company. This means they can handle every step of the syndication process, allowing them to guide you through the whole thing, from property acquisition to management. In fact, BAM Capital now have over $700 million AUM and 5,000+ units. [6]
No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.
For accredited investors who want to enjoy the passive income and all the other benefits of being in a multifamily syndication, schedule a call with BAM Capital and invest today.
Sources:
[1]: https://www.businessinsider.com/personal-finance/how-to-invest-in-real-estate-make-money
[2]: https://www.forbes.com/advisor/investing/how-to-invest-in-real-estate/
[3]: https://www.biggerpockets.com/guides/buy-and-hold-rental-property
[5]: https://multifamilyrefinance.com/apartment-investing-blog/multifamily-syndication#important
