Best Real Estate Investing Strategies

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Contributor, Benzinga
December 26, 2023

Becoming a real estate investor is one of the smartest things an individual investor can do. You can set yourself up with major, long-term cash flow with the right real estate property.

While all real estate opportunities are not created equal, the main investing ideas to look into are rental properties, commercial real estate, crowdfunding and real estate investment trusts (REITs). Understanding these real estate investment strategies is the first big step into setting yourself up for a prosperous future and an impressive portfolio.

The 6 Best Real Estate Investing Strategies

Using the most effective real estate investing strategies can help you build a real estate portfolio sooner. These are some of the strategies to use for your investing.

Invest in Rental Properties

Many investors first get their feet wet in real estate investing with a single-family rental property. Rental properties are easy enough to find in any real estate market. It's important to know the real estate market and the area to score a good deal in a nice location. Renters pay more to be near shopping, great schools, quiet streets and updated living.

Once you secure your spot as a landlord, investing in more income-producing real estate will come easy. Speak with your lender about options to purchase another rental property with the excess income from your first investment.

Once you have a few rentals under your belt, you can either do the upkeep and maintenance yourself or hire a property management company to take care of things for you. This way you are the property owner collecting passive income each month from several rental properties while doing basically no other day-to-day maintenance.

Invest in Multifamily Properties

Investing in multifamily properties is a great way to get the most bang for your buck. Multifamily housing is any dwelling that houses more than one residence, where more than one family can reside. This list includes duplexes, small apartment buildings and condo complexes. Though they are more expensive and cost more money upfront, you have more tenants under one roof, each paying rent monthly.

With multifamily investing, you are responsible only for one property. One property to take care of instead of several single-family homes in multiple locations can be a driving force to opt for multifamily investing.

This type of real estate investing is also one that carries a low risk — with a cap rate ranging from 4% to 10%, depending on property value, operating expenses and asset class.

Invest in Commercial Real Estate

Commercial real estate is different from investing in residential real estate, as it's on a much larger scale. Commercial real estate includes multifamily properties, officeindustrial, mixed-use, retail, hotels and land. It can be difficult to come up with the funds for investing in commercial real estate, but the rewards can be great. In addition to a range of a 3% to 10% cap rate, commercial leases are commonly in favor of the owner.

Commercial real estate commonly uses a triple net lease — the tenant is responsible for base rent plus utilities, insurance, taxes and maintenance. The landlord or commercial investor assumes basically no costs and little risk with a common 5 to 10-year lease in contrast to a residential property where leases are generally one year with the landlord assuming a lot more responsibility.

Invest in REITs

Another way to pursue commercial investments is to invest in REITs. This investment strategy works well for a passive investor or someone who doesn't want to deal directly with the lender, tenants, or properties. A REIT is a company that owns and operates income-producing real estate and rents it out to commercial tenants. An investor invests in the company and receives quarterly dividends based on their share of the income produced without owning real property.

This long-term investment, with low overall risk and competitive returns, as well as excellent capital appreciation and portfolio diversification can be a wise addition to your portfolio. Publicly traded REITs are professionally managed, with the goal of maximizing and building value long-term.

With the requirement that REITs distribute at least 90% of income to shareholders, most investment returns come from REIT dividends compared to typical stocks. Also, since it is open to non-accredited investors, investing in a REIT is an achievable investment opportunity.

Invest in Real Estate Crowdfunding

Real estate crowdfunding is a form of alternative financing that helps both accredited and non-accredited investors gain access to investment opportunities. Basically smaller amounts of money are raised by several individual investors to fund a real estate project.

Billions of dollars have been raised by crowdfunding, and you can access many real estate crowdfunding platforms, including CrowdStreetYieldstreetEquityMultiple, RealCrowd and Streitwise — among others. It's worth checking out a real estate crowdfunding site to explore what each platform offers and how they differ. It can be a great way to get into the world of investing with just a minimum investment to start.

Invest in Vacation Rentals

Vacation rental investments usually work out well. Not only do you purchase a vacation rental property in a beautiful location sought after by many, but you can charge more weekly for vacation rentals when in season and you have your own escape in the off-season.

When looking to invest in a vacation rental, it's worth getting the best location and offering the best amenities. This way you can charge more — and get it. People are OK with spending more on their vacations if they are on the beach, steps from a major city or have a view of the ski trails. To maximize your investment, offer the vacation rental as a short-term rental in the off-season. This practice helps you to recoup money and keep up with maintenance.

Best Real Estate Crowdfunding Platforms

If you want to invest passively combining your money with other investors, crowdfunding is a relatively new but powerful tool. Look through the crowdfunding platforms here to begin your search.

Benefits of Investing in Real Estate

The main benefit of investing in real estate is the extra income. As long as you are bringing in more money than you are putting out on the investment property each month, you are building a future for yourself: a retirement fund, a nest egg or an emergency fund. And if it eventually is too much to be a landlord or you want out of your REIT, you cash out.

If you're in it for the long haul, the capital gains can grow substantially over time, and you will enjoy great tax benefits. Residential and commercial real estate investments come with many tax deductions — like costs to maintain and repair buildings, mortgage interest, insurance, legal and accounting fees, travel, office space and business equipment.

How Much Money Do You Need to Invest in Real Estate

You don't need a lot of funds to get into real estate if you can tap into financing. You can take out an investment property loan to minimize your down payment but you must be mindful of profit margins. You can then invest in additional properties with the rental income.

Your passive income becomes your money for investing and increasing cash flow. Most crowdfunding platforms require a minimum investment of at least $1,000 up to $25,000. REITs, on the other hand, allow an investor to get started with the cost of a single share - ranging from $5 to $500. Anyone can become a successful investor — you just need to get started.

Habits of Successful Real Estate Investors

Successful real estate investors treat investing as their real estate business. It's a job that needs to be taken seriously and handled professionally for the best results. Contact local real estate agents in the area you're interested in and start making connections and asking for investment advice.

Competent real estate agents know the ins and outs of the area and the best locations to start, as well as competitive pricing in that real estate market.

Be sure to explore all investment opportunities and research ones that intrigue you. Residential or commercial real estate, REITs, vacation rentals and crowdfunding are all excellent ways to get started and see what works for you as an individual investor.

To become an effective real estate investor, get to know your market, make connections and treat it like a business. Then you will be on your way to becoming a successful entrepreneur and growing your real estate portfolio.

Embark on Your Real Estate Investing Journey

Real estate investing can help you generate long-term wealth and steady cash flow from your assets. The investment is inflation-resistant and is a core component of many portfolios. Using the best strategies and staying focused on long-term goals can help you experience more success as an investor.

Frequently Asked Questions

Q

What's the most profitable investment in real estate?

A

Because of the high ROI and consistent cash flow, investing in an AirBnb or long-term rentals is one of the best real estate investments.

Q

What's the 2% rule in real estate?

A

The 2% rule in real estate says that the monthly rent you collect on a rental property should be no less than 2% of the purchase price.

Q

What is the 10% rule in real estate?

A

The 10% rule in real estate says that you should only make a 10% down payment on a property.

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