Real estate investment requires a more diverse strategy than merely purchasing a home. In fact, if a real estate investor hopes to make money at real estate investing, they must settle on an investment objective. In other words, they must decide what type of investment property they plan to pursue, how much risk they are willing to take, and what they hope to gain from the real estate investment, and by when.
Here are three options to give you the idea.
1. Buy and Hold – In this case the investor would have the benefit of three (perhaps four) income streams at once: Cash flow when applicable, amortization (your equity increases as you pay down the loan), appreciation in the value of the property over time, and tax incentive (the ability to deduct certain expenses from normal income). This could be any property from a single-family home to a commercial office building. The idea is that the investor intends to hold the property as a rental. The downside, of course, is the longer investment duration.
2. Buy, Rehab, and Sell – This is a more risky investment strategy because the investor must locate a cheap, run-down property, and then hope that preliminary remodel cost estimates leave enough room for a nice profit after a sale, assuming, of course, that the property will be sold. Again, the type of real estate is not the issue. What’s in view here is a “fixer-upper” that can be flipped almost immediately without having to rent it out. When done correctly and Jupiter aligns with Mars, the advantage is the shorter investment duration.
3. Buy and Sell – This is merely a process where the investor ties up a property in escrow with the full intention of selling it either before or immediately following closing. New construction is a good example. The investor purchases a property during the construction phase, and then perhaps months later as the construction nears an end, the investor markets it at a profit. The benefit here is being able to make a small investment with little effort.