Outcome

Real estate investing has numerous strategies you can execute. It can be overwhelming trying to understand all of them. I am going to write out a few thoughts on the most common ones.

⏳ Buy and Hold

This is typically what people think of when they think about buying a rental property. You are going to find a house that you purchase and place a tenant. The tenant will be paying off your mortgage and you ideally have some extra cash flow from the rent is more than your mortgage, taxes, insurance, etc.

Pros

  • Cash flow
  • Can use leverage
  • Tax-deductible expenses

Cons

  • Managing risk
  • Managing tenants or PMs
  • Time intensive to find a deal

🛠️ Fix and Flip

There are dozens of cable television shows that have made this strategy popular. You find an old, outdated, and beat-up house in a desirable area and fix it up. By fixing it up you can now list it for a higher price than you paid and profit from the difference in your purchase price and sale price.

Pros

  • Big revenue potential
  • Multiple exit strategies available
  • Tax-deductible expenses

Cons

  • Capital and time intensive
  • Expertise needed to know what to fix and not overspend on finishings
  • Time intensive to find deals
  • Managing risk

🤝 BRRR

This strategy’s acronym stands for buy, rehab, refinance, repeat. It is a hybrid between a buy and hold and a fix and flip strategy. You are essentially doing both. Finding an undervalued house using creative financing terms (banks don’t like to lend on dumpy houses), fixing it up, placing a tenant, and then refinancing the new equity out of the home to pay back the debt. The ultimate outcome here is buying a rental and pulling your money out which allows you to repeat this process.

Pros

  • Acquire rentals with other people’s money
  • Can use leverage
  • Cash flow
  • Tax-deductible expenses

Cons

  • Managing risk
  • Time intensive to find a deal
  • Expertise needed to know what to fix and not overspend on finishings
  • Relationship with hard money or private money requires time and expertise

🏢 REITs

Real estate investment trusts. This is another great option for someone who has less capital and doesn’t want to actively manage a property, finds a deal, or crunch numbers. We started our real estate journey with REITs. We own shares of Realty Income (stock ticker “O”) and have money invested with Fundrise. We are looking to go deeper into real estate investing so we can benefit from the tax advantages and equity increase of owning a rental property. But the barriers to entering a REIT are low and the returns can be attractive.

Pros

  • Passive investing
  • Low barrier to entry

Cons

  • Limited leverage
  • Limited tax-deductible expenses
  • Requires trust of REIT owner

I fully realize there are other ways to invest in real estate. I intentionally left off wholesaling, notes, private money, hard money, liens, and other investing strategies because they are complex and I don’t have experience with them.

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