5 Must-Know Beginner Investing Strategies to Get You Results
Entering the world of real estate investing can be overwhelming, especially for beginners – I know we were! But understanding key strategies can make the process smoother and help you decide where you want to start out as a new real estate investor. Here are five essential real estate investment strategies to help you get started.
1. The BRRRR Method: Buy, Rehab, Rent, Refinance, Repeat
The BRRRR method is a popular strategy for building wealth, especially for rookie investors. This is how we bought our very FIRST rental property (that we still own today).
Here’s how it works:
Buy: Find a property below market value, ideally one that needs some work.
Rehab: Make necessary repairs and upgrades to increase the property’s value.* This is the key. Don’t get too crazy on things that won’t actually increase the value. Personally, I wanted to give this first property a good interior painting, a cute upgraded kitchen, landscaping, etc. Thankfully my design and decor aspirations were swapped for truly valuable repairs that DID increase the value of the property.
Rent: Once the property is rehabbed, rent it out to generate cash flow.
Refinance: After a set period, refinance the property based on its increased value to pull out your initial investment. We approached several local banks and went with the most favorable terms to us. We were able to get a refinance of 75% of the appraised value of the property (after our light rehab to bring up the value of the home).
Repeat: Use the cash from refinancing to buy your next investment property.
This strategy allows you to build a portfolio with minimal out-of-pocket expenses. We were able to recoup ALL OF OUR MONEY that we invested at the refinance and walk away with a property that we owned, and a tenant in place paying the mortgage. It was a win-win for our first real estate deal, which is why we love this method for newbie real estate investors!
2. House Hacking: Live for Free or Cheap
House hacking is another excellent strategy for beginners looking to enter the real estate market. It involves purchasing a multi-unit property or a single-family home and renting out part of it. Here’s how to do it:
Multi-Unit Properties: Buy a duplex or triplex, live in one unit, and rent out the others. The rental income can cover your mortgage payments, while you save up to buy another property and invest in somewhere else.
Room Rentals: In a single-family home, consider renting out spare rooms to roommates. This can significantly reduce your living expense and allow for some financial flexibility at home or extra cash to save up for your next rental property.
Short-Term Rentals: If local regulations permit, use platforms like Airbnb to rent out a portion of your home while you live there. House hacking not only helps you save on housing costs but also builds equity in the property.
3. Wholesaling: Quick Profits with Minimal Investment
While we’ve never completed a wholesale deal ourselves, we’re constantly looking for the right opportunity. Because who doesn’t love the idea of making money off of something you never have to deal with?! Wholesaling involves finding properties under market value – there’s your work cut out for you– getting them under contract, and then selling the contract to an investor or other buyer for a fee. Here’s how to get started:
Find Motivated Sellers: Look for distressed properties or homeowners in financial distress. Did you know that foreclosure and pre-foreclosure is public information and you can find properties where owners are already needing to sell by looking at your local county courthouse / website? Some counties even publish lists of properties with unpaid property taxes. These properties are also at risk of tax foreclosure. Popular sites like Zillow and Redfin have filters where you can search “foreclosures” or “pre-foreclosures” as well.
Negotiate a Purchase Agreement: Secure a property at a lower price with a contract that allows you to assign it.
Market the Contract: Find an investor interested in the property and assign them the contract for a fee.
Wholesaling can generate quick profits without requiring significant capital, long-term commitments or the headache of managing.
4. Fix-and-Flip: Buy, Renovate, Sell
The fix-and-flip strategy involves buying properties that need renovations, improving them, and then selling them for a profit. This investment strategy requires solid due diligence so you don’t end up with a huge headache and no profits. We tried this method in our beginning real estate investor years and ran into a few hiccups. We opted for a local handyman/contractor to do our rehab instead of hiring a team that could come in and knock out the rehab job. Two years later, our very unreliable contractor finished and we barely escaped with everything we put into this property. Don’t let that scare you. Just hire your team better than we did!
Here’s how to execute this strategy:
Identify Properties: Look for distressed homes in desirable neighborhoods.
Budget for Renovations: Plan a budget for repairs and improvements, ensuring you stay within your financial limits.
Sell Quickly: Once renovations are complete, list the property at a competitive price to attract buyers.
While fix-and-flip can be lucrative, it requires a keen understanding of market dynamics and renovation costs.
5. Buy and Hold: Long-Term Rental Income
The buy-and-hold strategy focuses on purchasing properties to rent out for long-term cash flow. This is mainly how we invest here at Investing RN. It can be a slow growth process, but it pays off.
Here’s what to consider:
Select the Right Property: Look for homes in growing neighborhoods with strong rental demand.
Understand Rental Markets: Research local rental rates to ensure positive cash flow.
Manage Wisely: Decide whether to manage the property yourself or hire a property management company.
This strategy offers stability and potential appreciation over time, making it a solid choice for long-term investors.
Whichever real estate strategy you choose,
real estate investing can be a rewarding avenue for building wealth. We’ve been able to go from $0 to multi-millions in real estate owned in just four years. By understanding and implementing strategies like the BRRRR method, house hacking, wholesaling, fix-and-flip, and buy-and-hold, you can create a successful investment portfolio. Remember, success in real estate takes time, education, and persistence, so stay committed to your journey!
Jenn, Investing RN
