Do you want to get started in the real estate sector, but don’t know where to start? Pay attention because I’m going to show you the 8 best real estate investment strategies that you can implement.
The 8 best real estate investment strategies
It is often thought that to invest in real estate you need a large amount of capital, but nothing could be further from the truth. The truth is that there are options for all tastes. In some cases, you will need a large sum of money, while in others you will not have to spend a cent.
I encourage you to check it out right now with these 8 real estate investment strategies.
Long term rental
During the fourth quarter of 2022, buying a home to rent out achieved a gross profitability of 7.2%. This is evident from a study carried out by Idealista 1, which also identifies Lleida (8.3%), Murcia (8.2%) and Huelva (8.1%) as the most profitable capitals.
It is certainly a perfect real estate investment if you are looking to generate profits and constant income while the property is rented. However, before buying a property, you should pay attention to different aspects: location of the property, maintenance costs, cash flow, who will be in charge of managing the property…
On the other hand, a good idea is to find a property below its market price and carry out a small renovation to increase its value so that it can be rented at a higher cost.
And how much capital do you need to get started? Generally speaking, you will need to have at least 20% of the value of the property, and around 10-15% of operating expenses to be able to apply for a mortgage.
Finally, remember that if you don’t have enough money, you can always opt for other types of options: buying and renting garages, storage rooms…
Rental for tourist purposes
Investing in properties to rent out during holiday periods is also an excellent alternative. Thus, it is a good idea to achieve high returns in the short term.
To minimize risks and maximize your profits, it is essential that you ask yourself a number of questions:
- Is the property’s location suitable for holiday rental?
- Are you able to properly manage and administer high tenant turnover?
- Do you know the cash flow of the area?
- Are you aware of the legal regulations you must comply with in order to rent your property for tourist purposes?
Remember that, although this type of real estate investment can be very profitable, it will also require a lot of dedication. It should not be forgotten that it is designed for very short-term rentals, so the time spent managing the property and dealing with tenants will be greater.
Buy, renovate and sell
Another of the best real estate investment strategies? Buying a property for its subsequent renovation and sale, something that is also known as House Flipping. In fact, according to the National Institute of Statistics (INE), home sales increased by 6.6% in January 2023 compared to the previous year, reaching 56,372 transactions.
The truth is that many properties are currently being sold at a reduced price because they need renovation before they can be habitable. Therefore, if you have the necessary capital, a great option is to buy this type of property, refurbish it and sell it at a price that is above its market value. In this way, the profits can be considerably high.
However, if you are interested in this investment strategy, you will not only need to have the appropriate knowledge, but you will also need to have enough money. In addition, it is essential that you dedicate time and effort to finding the best deals, managing accounting or selling the property, among other things.
Investing in real estate for commercial purposes
In the same way that you can buy a home to rent, you also have the possibility of doing the same with industrial warehouses or commercial premises. What’s more, according to the Idealista study mentioned above, during the fourth quarter of 2022, the acquisition of an office for rent provided a gross return of 12.9%.
However, as with other real estate investment strategies, it is important to be properly informed. Bear in mind that, in this case, controlling, managing and administering commercial premises is not as simple a task as renting a home for private use.
Crowdfunding
Real estate crowdfunding is based on collective financing. In this way, several investors join together to buy properties, something that they could not do individually. Therefore, it is an option that allows investing in real estate at a reduced cost.
There are currently various platforms on the market that offer different types of real estate projects for sale or rent and through which you can become a property owner without spending large sums of money. For example, among them, Urbanite or Stock Crowd IN stand out. Each of them has its own characteristics and conditions, so before deciding on one, it is advisable to inform yourself and choose the one that best suits your needs.
Investing in real estate by wholesaling
Wholesaling is another of the best real estate investment strategies out there. It involves finding properties below their market value, reaching an agreement with the sellers to get them under contract, and selling or transferring the sales agreement to the final buyer. The wholesaler makes a commission and is usually a percentage of the total price of the property.
This method does not require the expenditure of capital, although it will obviously require time, patience and effort to obtain the best properties. Wholesaling is also notable for its low risk and the possibility of obtaining high returns.
And who is the final buyer? Typically, it is a real estate investor who is looking for an intermediary to facilitate the search and closing of beneficial deals for him.
Foreclosures
Selling foreclosed homes can allow you to purchase a property for a really reduced price, as the goal is to make the process happen as quickly as possible.
Of course, as in all other cases, it is essential to know both the market and the condition of the property you are interested in or whether it has encumbrances. It is also important to have enough money since the payment period is usually short.
Passive real estate investing
If you wish, you can also invest in real estate passively through SOCIMIs, the Spanish version of REITs in the United States. With the sum of investors’ capital, these funds acquire properties and, through sales or rentals, generate profits that are distributed among the shareholders.
This is a low-risk, high-return option. In addition, this strategy will provide you with a diversified portfolio, as well as professional and specialized management.
Real estate investment strategies: final conclusions
As you can see, there are different real estate investment strategies, so you can choose the ones that best fit your needs. Of course, it will always be important for you to train yourself in the market in which you want to invest and, of course, to have both the capital and the time necessary to develop the activity properly.
If you want to know more about real estate investments, keep reading my blog posts. I share with you the best tips to get you started in the real estate sector.
Towards your financial freedom.