Every beginning is difficult. While real estate investing is one of the best ways to make money in both the short and long term, it is difficult for newcomers to choose the right strategy to get into this exciting business. If you want to make 2020 your most profitable year, here are 6 top real estate strategies for beginner investors:
1. Investment in long-term rental properties
Buying an investment property to rent on a long-term basis and remains one of the best ways to make money in real estate. The most important benefit of traditional rental is that an investor gets to make money in the short run (through rental income) and in the long run (through real estate appreciation). In addition, long-term rentals provide a more stable source of income in addition to lower turnover rates and require less management and maintenance than short-term rental properties.
If you think this may be the right strategy for you to start investing in real estate, then you will be keen to know the top places for this rental strategy in 2020. Pittsburgh, Detroit, Palm Springs, Baltimore, Philadelphia and Cincinnati will offer the most cash on city level cash return in 2020, according to data from Mashvisor, a real estate data analytics company.
2. Investment in short term rental properties
Another real estate strategy that new investors love is investing in short-term rentals, also known as AirBnB rentals or vacation rentals. The basic idea is similar to investing in traditional rentals, but this time you rent your property on a shorter term basis – usually per night – rather on a monthly or yearly basis. Short-term rental properties offer some major benefits compared to their long-term counterparts. First of all, to make money from AirBnB, you don’t really need to buy an investment property. You can start by renting one or two rooms in your primary house or renting it while traveling. This will allow you to get a taste of real estate without owning a property in the long run and will let you decide which is the right business for you. Second, a nationwide real estate market analysis conducted by Mashivisore shows that AirBnB rentals generate significantly higher rental income in most parts of US cities and towns and a return on investment compared to traditional ones.
Once to help early investors considering short-term rentals in 2020, Mushvisor’s AirBnB data show these locations as the most profitable: Tuscaloosa, Trenton, South Bend, Paducah, Abilene and Newburgh.
Note: Please keep in mind that some of these places may face some short term rental rules which you should check before deciding to invest.
3. Buy and hold
One of the most popular real estate investment strategies that is suitable for beginners is buy and hold. This strategy forces one to buy a real estate asset and hold onto it over the long term, until natural appreciation has pushed its value enough to make sense to sell it. The key to success with this real estate strategy is to buy a property below market value and / or in a cold (buyer) market, which is expected to warm up in the coming years. This will help accelerate appreciation and allow you to make money sooner rather than later.
As you can already guess, buying and holding real estate is a way to make money in the long term and not in the short run. This is a major disadvantage compared to the previous two strategies. Nevertheless, you can combine buy and hold with renting on a short or long term basis for maximum returns.
4. Fix and Flip
While the first three strategies were not necessarily passive, number four is actually active on the list of best real estate investment strategies for beginners. Fixes and flips include buying a property in a bad condition, making necessary improvements and repairs on it, and selling it to another real estate investor or homebuyer. The profit you make is the difference between the selling price and the purchase price in addition to fixes and repairs.
The most important benefit of flipping houses is that you get to make money quickly and you should not own an investment property for a long time. This makes this strategy an ideal option for those who want to taste the real estate business and learn more about it before deciding whether to do it in the long term.
The main drawback that early investors need to consider is that this strategy requires a very involved and active engagement on their behalf. You need to be able to find a distressed property for sale below market value; Hire and manage handyman necessary for home repair; Market the property to potential buyers; And quickly close a good deal. This is the only way to make money with this strategy.
On the other hand, if you start going out slowly without getting directly involved in real estate deals and decisions, you can invest in a real estate investment trust (REIT). Investing in a REIT is similar to investing in shares. All you need to do as an investor is to do some research on the top REITs and choose the best one for your budget and other criteria. You then start receiving dividends, provided that your selected trust performs well. The downside is that you won’t really get a taste of the real estate world. In addition, most REITs have strict requirements regarding the minimum amount of capital that you will have to invest, which makes them an unfair option for some beginners.
6. Real Estate Crowdfunding
The final strategy on this list of the best ways to start investing in real estate is a modern adjustment of investment in REITs. The rise of digital marketing and social media led to the rise of real estate crowdfunding. Real estate crowdfunding platforms are often called eREITs because they operate in a similar way. They bring together dozens or hundreds of relatively small real estate investors to purchase common commercial investment properties.
Once again, this is a passive real estate investment strategy because you are not responsible for the choice of specific properties and their management. However, crowdfunding has a significant advantage over REITs – namely, some platforms allow you to start with less than $ 500. This makes real estate crowdfunding one of the cheapest options for beginner investors.
The best thing about real estate investing is that it offers a myriad of strategies, which allow it to meet the needs and preferences of just about any investor. Whether you prefer an active or passive engagement and regardless of the size of your savings, you can start making money with real estate in 2020 with a top strategy for newbies discussed above.