Aug. 11, 2023
Every beginning is hard. While real estate investing is one of the best ways to make money in both the short and the long term, newcomers find it difficult to choose the right strategy to get into this exciting business. If you want to make 2020 your most profitable year yet, here are the 6 top real estate strategies for beginner investors:
1. Investing in Long Term Rental Properties
Buying an investment property to rent out on a long term basis has been and remains one of the best ways to make money in real estate. The most important benefit of traditional rentals is that an investor gets to make money both in the short run (through rental income) and in the long haul (through real estate appreciation). Moreover, long term rentals provide a more stable source of income in addition to a lower turnover rate and require less management and maintenance than short term rental properties.
If you think that this might be the right strategy for you to get started in real estate investing, you’d be interested in knowing the top locations for this rental strategy in 2020. According to data from Mashvisor, a real estate data analytics company, Pittsburgh, Detroit, Palm Springs, Baltimore, Philadelphia, and Cincinnati will offer the highest cash on cash return on the city level in 2020.
2. Investing in Short Term Rental Properties
Another real estate strategy which new investors love is investing in short term rentals, also known as Airbnb rentals or vacation rentals. The basic idea is similar to investing in traditional rentals, but this time you rent out your property on a short term basis – usually per night – rather than on a monthly or even annual basis. Short term rental properties offer a few major advantages compared to their long term counterparts. First of all, in order to make money from Airbnb, you don’t need to actually buy an investment property. You can start by renting out a room or two in your primary home or renting it out when traveling. This will allow you to get a flavor of real estate investing without committing to owning a property in the long term and will let you decide if that’s the right business for you. Second, nationwide real estate market analysis conducted by Mashvisor shows that in the vast majority of US cities and towns Airbnb rentals generate a significantly higher rental income and return on investment than traditional ones.
Once again, to help out beginner investors considering short term rentals in 2020, Mashvisor’s Airbnb data highlights these places as the most profitable ones: Tuscaloosa, Trenton, South Bend, Paducah, Abilene, and Newburgh.
Note: Please keep in mind that some of these locations might face certain short term rental regulations which you should check out before deciding to invest in them.
3. Buy and Hold
One of the most popular real estate investment strategies which is appropriate for beginners is buy and hold. This strategy entails buying a real estate property and holding on to it in the long term, until natural appreciation has pushed its value sufficiently to make sense to sell it. The key to success with this real estate strategy is to buy a property below market value and/or in a cold (buyer’s) market which is expected to heat up in the coming years. This will help accelerate appreciation and allow you to make money sooner rather than later.
As you can already guess, buy and hold real estate is a way to make money in the long term and not in the short run. This is a major disadvantage compared to the previous two strategies. Nonetheless, you can combine buy and hold with renting out on a short or long term basis for maximum return.
4. Fix and Flip
While the first three strategies were not necessarily passive, number four on the list of the best real estate investment strategies for beginners is a really active one. Fix and flip comprises of buying a property in a poor condition, performing the necessary fixes and repairs on it, and selling it to another real estate investor or homebuyer. The profit which you make is the difference between the sale price and the purchase price in addition to the fixes and repairs.
The most significant advantage of flipping houses is that you get to make money fast and that you don’t have to own an investment property in the long run. This makes this strategy an ideal choice for those you want to taste the real estate business and learn more about it before deciding whether to commit to it in the long term or not.
The main drawback which beginner investors need to consider is the fact that this strategy requires a very involved and active engagement on their behalf. You need to be able to find a distressed property for sale below market value; hire and manage the necessary handymen to repair the house; market the property to potential buyers; and close a good deal quickly. This is the only way to make money with this strategy.
On the other hand, if you’d rather start out slowly without being directly involved in the real estate deals and decisions, you can invest in a Real Estate Investment Trust (REIT). Investing in REITs is very similar to investing in stocks. All you have to do as an investor is to conduct some research on the top REITs and choose the best one for your budget and other criteria. Then you start receiving dividends, provided that your selected trust performs well. The downside is that you don’t really get a flavor of the real estate investing world. Moreover, most REITs have strict requirements about the minimum amount of capital which you have to invest, which makes them an unaffordable option for some beginners.
6. Real Estate Crowdfunding
The last strategy on this list of the best ways to start investing in real estate is a modern adjustment of investing in REITs. The advancement of digital marketing and social media brought about the emergence of real estate crowdfunding. Real estate crowdfunding platforms are frequently called eREITs because they work in a similar way. They bring the funds of dozens or even hundreds of relatively small real estate investors together to purchase common commercial investment properties.
Once again, this is a passive real estate investment strategy as you are not responsible for the choice of specific properties and their management. However, crowdfunding has one important advantage over REITs – namely, that some platforms allow you to start with as little as $500. This makes real estate crowdfunding one of the most affordable options for beginner investors.
The best thing about real estate investing is that it provides a myriad of strategies, which allows it to meet the needs and preferences of just about any investor. Whether you prefer an active or passive engagement and regardless of the size of your savings, you can start making money with real estate in 2020 with one of the top strategies for newcomers discussed above.
Daniela Andreevska is Marketing Director at Mashvisor, a real estate analytics tool which helps real estate investors quickly find traditional and Airbnb investment properties. A research process that’s usually 3 months now can take 15 minutes. We provide all the real estate information in easy to understand visualizations.