When you start investing, the investment world can seem too wide. But with some time-tested strategies, you’ll be able to simplify things and navigate around. An effective investment strategy can bring good returns over time. It can even allow you to focus on the other things that you love doing.
Investing in short-term rentals, for instance, is a good way of diversifying an investment portfolio. You can do this with an asset that generates similar returns to the stock market with less volatility. You also get to enjoy tax benefits that are unique to residential real estate while using leverage to boost the overall returns.
Direct ownership of investment properties is the most common way of investing in real estate. However, there are different other ways in which you can aim to make money from buying rental property.
The Best Investment Strategies Today
Short-term rentals are ideal if you’re interested in passive income from rental property. The umbrella of real estate investing, however, has different ways of making money. These numerous strategies can be overwhelming for beginners in short-term rental investment.
So in this article, we will explain what we believe are the best investment strategies. These strategies will give you a better understanding of how to make money from renting property. Hopefully, some of the investment strategies will be applicable in your case.
Keep reading because this article will give you a perfect starting point in your investment journey.
- Invest in Rental Properties
A rental property that has reliable tenants will certainly generate cash flow. One of the ways of ensuring that you make money with rental properties is to carefully screen applicants.
For investors looking for real estate passive income, it would be best to hire a property management company. At a fee, the company will handle everything, from tenant screening and securing deposits to maintenance.
You must, however, conduct due diligence when looking around for a good property management company. Get a breakdown of the fee the company might be charging and all the costs associated with the property.
It’s also important that you know what amenities to offer the tenants and how to correctly price rent that’s relative to the market. Providing a few amenities and having a very high price for the properties could have them remaining vacant.
- House Flipping
This rental properties investment strategy is for investors with a significant experience in real estate valuation, marketing, and renovation. It requires capital and the ability to do or oversee repairs when the need arises.
Note that just as day trading is different from buy-and-hold investors, house flippers are also different from buy-and-rent landlords. Case in point is that real estate flippers usually look to profitably sell the undervalued properties they purchase in less than six months.
You’ll not find pure property flippers investing in improving properties. Thus, the investment property that they buy must already have an intrinsic value that will turn to a profit without alterations.
It’s easy for flippers who are unable to swiftly unload a property to find themselves in trouble. That’s considering that they don’t keep enough uncommitted cash on hand to pay the mortgage on a property over the long term. The problem with this is that it leads to continued snowballing losses.
- Buy and Hold
This is an investment strategy that has proven itself over and over. With it, you can do exactly what the name says. As an investor, you can buy an investment and hold it indefinitely. Ideally, you’ll never sell the investment but own it for at least 3 to 5 years.
This strategy focuses on you in the long-term. Thus, you must avoid the active trading that hurts the returns of a lot of investors. Remember that your success depends on how the underlying business performs in the long-term. That’s how to find the stock market’s biggest winners and hopefully earn hundreds of times more on your original investment.
The best thing about this strategy is that you don’t have to think about it once you commit to never selling. This means that you’ll avoid capital gains taxes, which is a return killer.
A long-term buy-and-hold strategy means that unlike traders, you’ll not always have to focus on the market. This gives you time to do the things that you love rather than getting chained to watching the market all day.
- Online Real Estate Platforms
Online real estate investing is for investors who are interested in bigger commercial or residential deals.
Investors here carry out their activities through online real estate platforms, which are also known as real estate crowdfunding. Note that this investment strategy still requires investing capital, though it’s less compared to what’s required to purchase properties outright.
Online platforms are important in that they connect investors looking to finance projects with real estate developers. There are even cases where you can diversify your investments with very little money. You can invest in single projects or portfolios of projects.
- Real Estate Investment Group
REIGs are groups of private investors. These individuals pool their finances and know how to invest in real estate using various strategies.
Real estate investment groups have the flexibility of various structures, membership fees, and degrees of participation. Note that REIG is not a taxable corporation with a board of directors governed by certain rules and criteria. They are governed by private agreements rather than government rules and regulations.
A REIG is a good choice of investment for those who want to own a stake in physical real estate. It can also be a good way of learning how to invest in physical real estate from other members.
- Dollar-Cost Averaging
Dollar-cost averaging is the art of putting money into your investments. This practice is done at regular intervals.
You can, for instance, determine that you can invest $500 a month. That means that you put $500 to work every month no matter what the market is doing. You can even choose to add $125 every week instead. Regularly purchasing an investment helps to spread out your buy points.
Spreading out your buy points also helps you to avoid the risk of “timing the market” and risking dumping all your money in at once.
This investment strategy enables investors to get an average purchase price over time. It ensures that you’re not buying too high. Dollar-cost averaging is also good at helping you establish a regular investing discipline.
You’ve now read through 6 of our best investment strategies. These are the different routes up the financial ladder and each has its advantages and disadvantages.
Note that you can merge various strategies at different times. You can, for instance, start with online real estate platforms and transition to long-term buy and hold rentals. Also, you shouldn’t worry if you try one strategy and it fails.
The investment world, especially in real estate, is an entrepreneurial venture. You sometimes have to experiment and try ideas that will fail before you find your sweet spot.