Real estate investment often provides opportunities that other investments simply can’t match. It’s an alternative many investors are considering in the wake of the big swings the stock market has experienced over the past few years, and because it offers some incredibly attractive tax breaks, it could mean the diversification your portfolio needs. As with any investment opportunity, however, developing the best possible strategy is key to realizing the best returns. What strategy might work for you? Here are six real estate investment strategies that many investors are considering in 2022.
1) Flipping a Home
This strategy has been a popular option for real estate investors since the late 1980s, but it really gained a bit of steam over the last two decades with the introduction of reality shows that feature popular home flippers like Jonathan and Drew Scott’s Property Brothers. The goal of this strategy is to renovate various aspects of the property to enhance the overall sale price. While this can seem like a fantastic strategy, it takes extensive knowledge of the market and connections with a renovation team that can provide beautiful work at a price you can afford.
Many investors take this option one additional step forward by living in the home while they’re making the renovations. This is an excellent strategy because it is possible to pay less in capital gains taxes on the eventual sale of the property, and it allows for owner-occupant level interest rates, which are lower than investment loans.
2) Purchasing Rental Properties
When many people consider adding investment properties to their portfolios, they often think of this investment strategy. It’s a fairly classic idea. You purchase a property, make the necessary renovations for a tenant or multiple tenants to live in the property, then begin securing residents. You can even use a property management company to make it a truly passive investment option. The challenge with this method is to truly understand the rental market in the area and what amenities most tenants seek. It’s important to find areas that have proven job and population growth. That knowledge will be key to ensuring you have a long waitlist of tenants to keep your investments successful well into the future.
This option, though, isn’t just about long-term holdings. The newer real estate investment strategies involve doing this with short-term tenants. Thanks to the rise in sites like VRBO and Airbnb, you’ll select a property, add amenities people might want in a vacation home or a short-term business rental, then list it. There’s a real advantage in short-term rentals, as you often have quite a bit of flexibility, particularly if the property is in a fairly desirable location. The downside with this type of investment, of course, is that the cash flow is less dependable. And you have to be careful when it comes to zoning and city ordinances.
3) The Wholesale Method
If you have extensive knowledge of the real estate market, but you’re not quite sure you’re prepared to invest a lot of extra money in the market itself, becoming a property wholesaler might be the right way forward. This is a fairly short-term strategy that has you place a contract on a home, then find another potential buyer (like another real estate investor) to purchase the property. The goal is to find a buyer before the contract closes with the original seller and to sell the home for more than you initially agreed to pay for it. This method, unlike many others, requires quite a bit of time and patience. It also requires extensive contacts within the market to ensure you find a buyer before you need to fulfill the contract.
4) Publicly Traded REITs
Many investors park much of their money in mutual funds. REITs, or Real Estate Investment Trusts work a bit like a mutual fund does, and they provide some of the same advantages. Instead of buying a combination of stocks and bonds, though, REITs purchase commercial properties that provide a steady source of income. Once you buy into a REIT, it is a passive investment strategy that could provide some reliable returns well into the future.
5) Investing With Others Using REIGs
Working with other private investors can be an excellent way to begin understanding the real estate market, and REIGs, or Real Estate Investment Groups, are an excellent way to do that. These are groups of private investors who work together to use a number of different strategies to take advantage of the market. There are a few different structures for REIGs, and some do require membership fees. There may be other requirements for investment as well. REIGs, though, are governed privately. If you’re looking to physically invest in real estate, this may be a perfect way forward.
6) Buying Tax Liens
This niche area among real estate investment strategies is often overlooked. While it can come with quite a bit of risk, it can also offer a fairly high rate of return. A tax lien, if you’re unfamiliar with the concept, is a claim the government can make toward a property should an owner fail to pay his or her taxes. The liens are then sold at auction. The investor must pay the full amount of the lien to the municipality, then they have the ability to collect the principal, interest, and penalties from the property owner. Should the owner fail to repay the amount, the investor then owns the property.
At Roy & Company, we work with many different kinds of investors to help ensure they find the properties necessary to best fulfill their strategies. As a full-service firm concentrating on investment realty, we’re available to help you identify both the right way forward and the properties that might meet your needs. Learn more about how we can help. Contact us today.
