For people looking at real estate, it’s very important to look beyond the hype and get a good understanding of the three basic real estate investment strategies. With a good knowledge of these strategies, it is possible to put together a solid real estate investment business plan; and that’s what you want.
You want a solid plan that can make your investments work for you – and unfortunately the real estate gurus like to talk about complicated techniques when all it takes is a firm understanding of basic techniques.
So it’s like this – you invest in real estate to make money, but at the point of buying all you are doing is spending money. The most important thing comes next – how you make money from your purchase.
Buy and hold
Probably my favourite of all real estate investment strategies is the old buy and hold. It’s not all that popular with the real estate gurus because it’s not all that exciting, but it sure does work. For those investors who are into investing for retirement, buy and hold is the best strategy for you – hands down.
The key to the buy and hold strategy for investment properties is the purchase price. This is where short sales and foreclosures come in really handy to buy a good property at a price well below market valuation. Another major factor is to take a good look at the surrounding area. Look at the transport infrastructure, commercial and government developments, schools and community centres. All these factors mean that there is a vibrant community in the area, and that is a good thing for prospective tenants.
Speaking of tenants, they are the key to the buy and hold strategy. You want to purchase your investment property in an area where the rents are reasonably solid and the vacancy rates are low. Don’t neglect section 8 tenants either – there is a lot to be said for helping the government help families out.
Buy and lease
This investment strategy is also sometimes known as lease option or rent to own. Again, this is a way that real estate investors can help people while making money – it’s a theme we like here.
Like the buy and hold technique, the buy and lease investment strategy is completely dependent on the purchase price. For this reason, you want to take your time before you jump in and buy. What we have often found works with this strategy is finding the lease part of the deal first.
Since it’s a rent to own strategy, what we’ll be doing is buying a property and then renting it out – on a permanent basis. The idea is that they people who rent the home will end up buying the home. What we love with these deals is that they are so flexible. You could act as the bank and basically finance their home purchase.
One thing we like doing is buying a property at a good price, under lender finance or not, it doesn’t really matter. We then put together a contract for someone to rent to own a home, and finance their purchase for a point above the interest rate. At the outset we and the renters agree on terms and value for the property.
This means that not only have we located a long term tenant for our property, but we have also locked in a sale at a price we are happy with. Its a win/win situation.
We won’t spend too much time on this strategy – but it’s included, because it’s basic. This is the one that the gurus spend so much time talking about. It’s the one that the legendary deals are built around – but it’s also the most risky.
Once again, the low purchase price is key (sensing a pattern here?) – but the focus is on off loading the property quickly to lock in a profit. How quickly this occurs depends largely in the condition of the property. Usually a property that you are looking to flip will require at least a little but of refurbishment.
Generally if a decent amount of renovation is required, it won’t be worth a flip. What is central to a good flip is the basic refurbishment – replacing door handles, scrubbing walls, replacing light fittings, doing basic yard work and simple repairs.
The three basic real estate investment strategies in summary
How you invest depends entirely on what you want to get out of your investments. Sure, you want financial rewards – but in what form and when? The answer to these questions will influence what strategy you end up implementing. Me, I like buy and hold – but that’s because I’m in it for the long terms.
What strategy do you like and why?