Updated June 10th, 2020
By Bill Manassero
If you're thinking about investing in real estate to make money, you need first to determine your financial goals. Do you need to make money quickly, invest for your children's college fund, or build wealth for your retirement? Once you determine your financial goals, you need to decide which type of investing strategy works for you.
Here is a beginner’s guide to three real estate investing strategies
Make Money in Real Estate – Fast Cash Strategy
If you're low on cash, you can get started by wholesaling — finding a bargain house and selling the contract to another real estate investor. Join a real estate investing club to help you find investors willing to pay you for finding good deals.
Wholesaling takes some legwork. Investors will not pay for a property they could have located themselves off the MLS, because a sign was in the yard or because you saw it on a sheriff sale listing. A good wholesaler will bring them deals other investors may not have noticed.
A deal like a home you drive by that looks vacant and has long grass and newspapers scattered around the yard. A wholesaler with second-hand knowledge of house, whose owner is considering selling along with contact information they can pass on, will become an investor's best friend.
If you are uneasy about jumping into wholesaling, perhaps you can be a bird dog (a person who locates houses for wholesalers) in exchange for training or mentorship until you are comfortable investing for yourself.
Make Money in Real Estate – Income Property Strategy
If you want to increase your monthly income, look for an income property that will return a positive net cash flow from month to month.
Start with a single-family house or a small multifamily property (duplex, triplex, or four-plex). Look for a bargain below market value. Fix up the property to generate top rental income.
Find properties that will rent for more than your mortgage payment and associated expenses (property insurance, taxes, maintenance, and repairs). To do this, you'll want to use a rental rate evaluator like Rentometer. Rentometer will give you the average rent for similar properties in your neighborhood and city. This will help you know what the market will bear for rent and what you could charge.
You will need good credit to get a loan with reasonable interest rates. If you want to get the best interest rates, consider living in one of the units for at least 12 months. It's called house hacking.
You may need to go out-of-state to find a property that will give you the best return on your investment. You can't pay $300,000 for a home with a mortgage of $1,500 that only rents for $1,000. You might start with a home for around $100,000 that rents for $800-1,200.
In a few years, your rental income should go up, along with your equity. Many real estate investors enjoy thousands of dollars each month generated by income property.
If you don't want to deal with tenants, you'll want to factor in the cost of a property manager who can manage multiple units with minimum effort.
Make Money in Real Estate – Investment Property Strategy
A larger investment property, such as an apartment building, offers a different strategy if you want to make money focusing on profits.
Look for a multifamily property that you can add value and transform it so that it will appreciate over time. Besides fixing up an apartment building, you can transform a property by upgrading it. By remodeling exteriors and common areas, landscaping, adding amenities, you can increase rents, effectively increasing the value.
For instance, some investors buy apartment buildings, upgrade the unit's interior and exterior, reduce expenses, and raise rents to increase its value quickly. Many investors speculate on land and make money by holding the land until a development company is interested in the area and increases the value.
Examine your financial situation, along with your long term goals. You can get started by wholesaling or flipping properties and move onto single-family rental properties. You can then make more substantial profits with more significant investment properties. You might end up using all three strategies to start making serious money investing in real estate.
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