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How to Pick a Real Estate Investment Strategy
There is no one-size-fits all real estate investment strategy
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I download TikTok in an attempt to feel cool and in touch with a younger demographic. Gen Z or whatever. A 16-year-old TikTok influencer pops up on my feed saying he makes millions fixing up houses and selling them. The next video is similar. Another real estate guru. His millions are from tiny homes. It’s easy to get analysis paralysis with all the different real estate investment strategies out there. I’m especially prone to go down these rabbit holes.
There is no one-size-fits all real estate investment strategy. People have different goals, strengths, risk tolerance, etc. First, it’s important to take a look at the options.
In Jay Papasan’s book The Millionaire Real Estate Investor, he explains there are two main methods for buying residential real estate: Buying for cash, and buying for cash flow and equity buildup. Two options make it easy. I feel it’s best not to overcomplicate things.
With buying for cash, you’ve got fix and flip, and wholesaling. Fix and flip is buying a property, improving it, and selling it for more than you bought it for. HGTV style. Wholesaling is when you find an awesome deal on a property, enter into a contract with the seller, and sell it to an investor at a higher price. Wholesalers are middle men, and make a finder’s fee on the transaction.
Buying for cash flow and equity consists of two methods. Buy and hold, and BRRRR. Buy and hold is the most common method. As the name suggests, you buy the property, rent it out, and hold it for the long term. I go over pros and cons of the different property types for buy and hold here.
BRRRR stands for buy, rehab, rent, refinance, repeat. This strategy focuses on buying undervalued properties and making improvements to them. Improvements increase the home’s value, let you raise rents, and build equity quicker. Since the house is theoretically worth more after the improvements, you can do a cash out refinance and buy more property. Then repeat the process until you have an empire.
Fix and flip and wholesaling are not passive. I’m looking for passive income, so those options don’t interest me. I like the fix and flip HGTV shows, but I am not handy, and see myself losing money doing that. For the same reason, I have not used the BRRRR method. Figuring out how to work with contractors to rehab a property doesn’t seem like rocket science, but there is more room for error and losing money. BRRRR cash flow may be better than buy and hold without improvements. I’ve been risk averse, but my tune could change in the future. I like buy and hold on multi-family properties. Buying rentals that already have tenants is ideal. Simplicity is key.
Even in a very basic breakdown, there are a lot of options. What strategy is best for you? The best strategy is one that compliments your goals and strengths. I will go over how to leverage your strengths in another post.
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