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The 6 Best Real Estate Strategies to Start Building Your Portfolio

These are the top real estate strategies investors use to build their portfolios.


[Updated: Mar 03, 2021] Dec 04, 2020 by Tara Mastroeni
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One piece of investment advice new investors hear all the time is to clarify their investment goals and strategy. While investment goals are very individual, there are really only a few different real estate strategies to choose from. With that in mind, we've listed them below for your consideration. Look them over so you can figure out which investment strategy makes the most sense to follow as you build your portfolio.

Buy-and-hold strategy

Level: Intermediate

Buy and hold is a common real estate investment strategy, especially among new investors. With this real estate strategy, the investor will buy a rental property, find a tenant to rent it out, and collect regular rental income. While this strategy is most often thought of in a residential real estate context, it can also be used in commercial real estate as well. Often, investors will start with just one investment property and add to their portfolio over time.

The main benefit of this strategy is that it offers the potential for regular cash flow from the monthly rental payments, as well as a potential long-term profit from appreciation. However, the downside is that it's an active investment strategy. If you decide to go this route, be prepared to be a landlord and to take on all the work it entails.

How to get started

If you think following a buy-and-hold real estate investing strategy might be the right choice for you, the first step is to connect with a reputable real estate agent and lender, preferably ones experienced in working with real estate investors. They can help you determine how much you can afford to spend on an investment property as well as look at your available options.

Short-term rentals

Level: Beginner

These days, short-term rentals have been popularized by websites like Airbnb or VRBO. As the name suggests, a short-term rental strategy works similarly to a buy-and-hold strategy, except that your tenants will not be in place for as long. In addition, rather than renting out traditional single-family homes as you might with a buy-and-hold strategy, short-term rentals often use vacation homes or even rented apartments in order to generate rental income.

The advantage of choosing short-term rentals over a long-term strategy is that you often have more flexibility with your lease options. For example, if you wanted to use the property as a vacation getaway some of the time, you would have that flexibility. However, the downside is less dependability in your cash flow, and you're often taking on more risk as a result of the number of people coming through your rental.

How to get started

Getting started with this type of investment opportunity will depend on a few factors. If you already have a property you think can be used as a short-term rental, start by researching short-term rental regulations in your area. Often, local municipalities will have guidelines in place to regulate the use of platforms like Airbnb.

If you don't have a specific property in mind, research the market where you want to invest. Short-term rentals are a particularly good fit for remote investing, so don't feel limited to searching in your own market.

Fix-and-flip strategy

Level: Advanced

In the last few years, it seems like everyone wants to start making money flipping houses. In case you're unfamiliar, a fix-and-flip investment strategy involves buying residential property that's undervalued in a real estate market, fixing it up, then quickly selling it for profit.

Here, the main advantage is that you don't have to worry about dealing with property management, as the real estate assets you purchase should only be kept in your portfolio for a short period of time before being sold. However, the downside is that flipping homes is a lot of work. In addition, it's very easy to lose money on a flip. There's always a risk you'll overimprove the property and not be able to get your investment out of the home, especially if you're newer to the real estate business.

How to get started

In this case, the best first step would be to further educate yourself on how to flip homes. Don't be afraid to reach out to others in the business for investment advice. It's very easy to get in over your head, so you want to do as much research as possible before you get started.

Real estate wholesaling

Level: Intermediate

Truthfully, real estate wholesaling is less about adding properties to your portfolio than about being able to network and form a reliable marketing strategy. Also known as "micro flipping," this strategy involves buying property that's undervalued for the market, then selling it very quickly to an end buyer for profit.

One of the biggest advantages of wholesaling is that it requires very little capital to get started. Typically, in these transactions, you can use transactional funding to purchase the property for a short period of time.

That said, in practice, wholesaling can get tricky. In many jurisdictions, there are rules and regulations around who can earn a commission on a real estate transaction and how they can do it. Additionally, wholesaling relies heavily on having an established network of end buyers ready to buy your properties.

How to get started

Getting started in wholesaling depends on your ability to build a network. Start by networking with real estate agents who might be able to point you in the right direction of undervalued properties. At the same time, do your best to start scouting out interested buyers to whom you might be able to sell the properties.

Real estate investment trusts (REITs)

Level: Beginner

If you like playing the stock market, you might consider investing in a real estate investment trust (REIT). REITs are publicly traded companies that either own and operate or finance income-producing properties. Individual investors and accredited investors alike have the opportunity to buy shares of these companies. In exchange, they receive dividends from any income the company produces.

Investors tend to like adding REITs to their portfolio because they are truly a way to generate passive income. With REITs, if you make a good investment, you get all the benefit of investing in real estate without having to deal with the day-to-day operations. However, any dividends you receive from these investments will be taxed at a higher rate because they generally don't meet the IRS definition for "qualified dividends."

How to get started

The best way to get started investing in REITs is to get in contact with your broker and discuss your options. If you're not interested in researching individual REITs, you can also explore the possibility of investing in a real estate mutual fund or real estate ETF, which are similar investing strategies they give you the security of investing in a managed fund.

Crowdfunding

Level: Beginner

The last strategy we'll describe to help you build a real estate portfolio is crowdfunding. In crowdfunding, an experienced real estate developer will identify an investment opportunity but won't have the capital to make it work on their own. Instead, they'll use a digital platform to pool capital from Individual investors, who buy shares similar to other forms of equity investing.

Again, this strategy can be a great choice for those who want to generate passive income. You don't have to know much about being a real estate investor to participate in crowdfunding. However, in that case, it's especially important to do your homework. The downside is that it's up to you to vet the investment opportunity and make sure it's worth your contribution.

How to get started

Here, your first move should be to start researching crowdfunding platforms. There are all sorts of options available, but again, you have to vet them. For best results, we'd recommend going with a crowdfunding platform with an established reputation and positive reviews.

The Millionacres bottom line

When first getting started in real estate investing, the best thing you can do is to pick one investment strategy and really focus on mastering it. Diversification is important, but it can come later. Until then, use this guide to help you decide which investment strategy is right for you. Armed with this knowledge, you can get started building a portfolio that makes sense for you.

11% of the mega-wealthy swear by this investment…

The richest in the world have made their fortunes in many ways, but there is one common thread for many of them: They made real estate a core part of their investment strategy. Of all the ways the ultra-rich made their fortunes, real estate outpaced every other method 3 to 1.

If you, too, want to invest like the wealthiest in the world, we have a complete guide on what you need to take your first steps. Take the first step toward building real wealth by getting your free copy today. Simply click here to receive your free guide.

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