Real estate investing is a mixed bag—while the overall concept remains the same, there are many different paths an investor can take to create a successful investment portfolio. Diversity is key when investing and real estate is just the effort that will allow you to diversify your holdings and capitalize on your income.
Understanding the different options available to you through this varied industry will allow you to determine what is the best choice for you. As with all investments, a thorough understanding is vital to your success as an investor. Knowledge is always power and, in this case, knowledge is also money.
So, what are the different types of real estate that you should be familiar with?
Here’s the scoop…
Fix and Flip
This is one of the most recognizable forms of real estate investment, thanks to the rash of television shows depicting couples, brothers, and former rap stars buying, flipping, and selling houses for an exorbitant amount. While these shows may have you believing that the fix and flip method is a sure way to get rich quick, it doesn’t quite work like that in the real world. A smart investor, however, can earn a substantial profit from the fix and flip method.
Fix and Flip houses are active, short-term investments. An investor purchases a house for a low price, then renovates and resells relatively quickly to make a profit. This investment type has to be remodeled and sold quite quickly in order to keep expenses low and to create a respectable return on investment rate.
While this can be a great tool to add small bursts of additional income, the fix and flip method is an active process—investors have to be extremely hands-on due to the nature of the investment. For those wanting a more passive form of income, fix and flip probably isn’t the right solution.
Wholesaling isn’t a new method, but it is slowly gaining traction over the last few years. Wholesaling allows an individual to make money in real estate without having to put any money up front. A wholesaler locates sellers who have yet to list their home on the market and then connects them with a buyer. In return for organizing the transaction, they are entitled to a portion of the sales price.
This method of investing is another active process. It requires the individual to network and create a strong pool of both buyers and sellers in order to be successful. As the wholesaler facilitates the sale, there is a lot of work required from the individual throughout the process, as well.
Buy and Hold
Buy and Hold is perhaps the most favored method of real estate investment. It is a long-term investment, which creates a steady, monthly revenue for the investor. In addition to a monthly revenue, buy and hold allows investors to gain appreciation over the years as well as earning a depreciation tax deduction for several years.
Buy and hold can be either active or passive income, as it gives you the ability to choose between managing the property yourself or hiring a third-party property manager to handle the day to day operations for you. Of course, it does require a knowledge of the market beforehand in order to understand which deals will garner a positive cashflow.
Buy and hold comes in many formats. Single-family homes are often the most popular, as they are easier to rent as well as easier to sell when they reach their rental shelf-life. Other forms of buy and hold include apartment building, multifamily units (such as duplexes), and turnkey properties.
Turnkey properties are the most passive of the buy and hold options. Turnkey properties are purchased from a turnkey investment company and are fully renovated and ready to rent prior to the investor taking ownership. Many of these properties are often rented out by the investment company before being listed as available, too. In addition to handling the renovation and rental of these homes, the investment companies offer a property management service after the closing, allowing the investor to remain hands-off throughout the life of the rental property.
Buy and hold is a great way to increase your portfolio as you can utilize the profit from one investment to purchase another investment, and so on. Growing a substantial portfolio is easier when utilizing this method, which creates a larger monthly revenue and a greater appreciation gain when looking to exit the investment business.
Real estate is one form of investing that gives investors a variety of options in growing their wealth and accumulating an impressive portfolio. Whether you are looking for a passive or active income, a monthly increase in your existing income, or a future retirement plan—real estate investing has an option that will work for you.