Once you’ve decided that you want to diversify your portfolio with some real estate exposure, the next step is figuring out how. There are many ways to invest in real estate. Let’s talk through the primary ones.
- Buy and hold – This is the most common and straight-forward investing approach. It’s simply buying a house, renting it out, and holding on to it for the long term.
- Fix and flip – The method popularized by TV shows where you buy a house under market, rehab it, sell it for a profit within a year
- Turnkey – Similar to fix and flip except the companies will place a tenant after remodeling and only sell to investors instead of the open market.
- House-hacking – This is where you buy a small (typically 1-4 unit) building and live in one of the units while renting out the others. This is a great way to reduce or eliminate your personal housing expense while also getting your feet wet on becoming a landlord. This method can also include renting out individual rooms within a condo or single family home too.
- BRRRR – This stands for Buy, Rehab, Rent, Refinance, and Repeat. The key to this method is accurately estimating your rehab expenses and the after repair value (ARV). If you’re able to find a property where the purchase price and the rehab costs combined will equal 70% or less of the ARV, you can refinance the property and get back all of your invested money to reinvest again somewhere else.
- REITs – REITs are purchased and traded just like regular stocks. You generally get paid higher dividends though.
- Crowdfunding / Syndications – If you don’t want to own property directly, you can invest with a group that is buying rental properties and pays out over several years. Crowdfunding is generally open to the public with some financial requirements, while syndications are generally smaller groups that you sometimes have to be invited into.
- Wholesaling – Work with motivated sellers, contract with them for a certain price, and then sell the contract to others at higher price. You’re essentially paid a finders fee and never own the property directly.
- Buying notes – Take over a distressed loan and become the bank. You then have to work with the homeowner to come to new affordable terms that make the investment worthwhile.