Real estate investing can be a powerful way to build long-term wealth, generate additional income, and create financial opportunities for the future. But if you’re new to investing, figuring out where to start can feel overwhelming.
The good news? There isn’t just one way to invest in real estate.
From owning a traditional rental property to investing without purchasing a physical property at all, there are several strategies to consider. Each comes with different financial requirements, responsibilities, risks, and potential rewards.
If you’re thinking about getting started, here are five common real estate investment strategies and what you should know about each.
1. Buy and Hold Investing
Buy and hold is one of the most traditional approaches to real estate investing. The strategy is relatively straightforward: purchase a property, rent it to tenants, and hold onto it for an extended period of time.
Rental income may provide monthly cash flow, while mortgage payments can help build equity in the property. Over time, investors may also benefit if the property’s value appreciates.
Successful buy and hold investing requires looking beyond the purchase price. Potential investors should consider expected rental income, financing, property taxes, insurance, maintenance, vacancies, and other expenses when determining whether a property makes financial sense.
For investors focused on building wealth over time rather than earning a quick return, buy and hold can be an attractive long-term strategy.
2. House Hacking
House hacking offers a unique way to combine homeownership with real estate investing.
Typically, an investor purchases a multi-family property, lives in one unit, and rents out the others. The income from those tenants can then help offset some of the owner’s monthly housing expenses.
House hacking doesn’t necessarily require a traditional apartment building, either. Depending on the property and local regulations, a home with a separate living space or other flexible configuration may offer similar opportunities.
This strategy can be especially appealing to first-time investors because owner-occupied financing may provide options that aren’t available when purchasing a traditional investment property. For eligible military buyers, certain multi-unit properties may also be purchased using VA financing as long as occupancy and other loan requirements are met.
3. Real Estate Investment Trusts (REITs)
Not every real estate investor wants to become a landlord.
Real Estate Investment Trusts, commonly called REITs, provide another way to invest in real estate without directly purchasing or managing a property.
REITs are companies that own, operate, or finance income-producing real estate. Depending on the REIT, those investments might include apartment communities, office buildings, shopping centers, hotels, warehouses, or other types of property.
Investors can purchase shares and potentially receive income through dividends while avoiding many of the day-to-day responsibilities associated with owning rental properties.
For someone interested in adding real estate exposure to an investment portfolio without managing tenants or maintaining a property, REITs may be worth exploring.
4. Wholesaling Real Estate
Wholesaling takes a very different approach.
Rather than purchasing a property with the intention of keeping it, a wholesaler typically looks for off-market or distressed properties that may be available below market value. The goal is to get the property under contract and then assign that contractual interest to another investor for a fee.
Because the wholesaler generally isn’t renovating or holding the property long-term, the strategy can require less capital than some other forms of investing. However, that doesn’t necessarily make it easy.
Finding viable properties, understanding property values, estimating after-repair value, building relationships with investors, and understanding the legal requirements surrounding wholesale transactions are all important parts of the process.
5. Fix and Flip Investing
You’ve probably seen this strategy on television: buy a home that needs work, renovate it, and sell it for a profit.
The concept may sound simple, but successful fix-and-flip investing requires careful planning.
Investors need to understand the property’s current value, renovation costs, potential after-repair value, financing expenses, carrying costs, and the amount of time it could take to complete the project and sell the home.
Unexpected repairs or an inaccurate estimate can quickly affect potential profits, which is why construction knowledge, reliable contractors, market research, and a realistic budget are especially important with this strategy.
Which Real Estate Investment Strategy is Right for You?
There isn’t one investment strategy that’s right for everyone.
Someone interested in building a portfolio over several decades may approach real estate very differently from someone looking for passive investments or short-term opportunities. Your available capital, experience, risk tolerance, time commitment, and long-term goals should all play a role in determining which path makes the most sense.
That’s why doing your research before purchasing an investment property is so important. Understanding the local market, running the numbers, and building a knowledgeable team around you can help you make more informed decisions from the beginning.
Ready to Learn More About Real Estate Investing?
Want to take a deeper dive? Watch our Real Estate Investing 101 video to learn more about buy and hold investing, house hacking, REITs, wholesaling, and fix-and-flip properties—and what to consider before choosing your investment strategy.
Whether you’re considering your first investment property or looking for your next opportunity in San Antonio and the surrounding areas, The Schrader Group is here to help you understand the local market, identify potential properties, and navigate the real estate side of the process.