New Investors: Which Real Estate Investing Strategy Is Best?
Which is the best real estate investing strategy to start out with for new investors? Is it wiser to start out wholesaling houses or building a portfolio of single-family rental homes? Are there any other options? Is becoming a Realtor an even better first move? There are probably more ways to invest in real estate than most are aware of. So where should you start?
Eight Real Estate Investing Strategies to Consider:
- Wholesaling houses
- Acquiring and renting properties as a landlord
- Building new properties
- Real estate stocks and REITs
- Private mortgage lending
- Investing in mortgage notes
- Fixing and flipping houses
- Turnkey property investing
Choosing the Best Real Estate Investing Strategy for You
All of these investment options can work. All have their own pros and cons, and individual challenges. Some qualifying questions to ask yourself before deciding:
- What type of real estate education do I need to fully understand each strategy?
- What level of credit may be required?
- How much cash will I need to get started and stay solvent?
- How long will it take to see a positive return on investment?
- What are the potential risks?
- Is this the hardest my money or time can work for me?
- Do I have the time to do this right?
- What are my priorities? Taxes, high returns, security, cash flow or cash now?
- Is this a good fit for my skill set?
- Where will I find help if I get stuck?
In some cases, the extreme volatility and lack of security options like real estate stocks and publicly traded REITs may be beyond the risk level some investors can stomach. Some will find the advantages of direct investment in brick and mortar far more appealing. Some new investors may be happy with modest cash flows over time, while others desire to make big wealth and lump sum cash gains within weeks. Some relish the rewards of hands on investing, while others may be fine with hands-free options – providing they deliver solid returns.
Eventually, many real estate investors may want to engage in a variety of these strategies in order to diversify and stay mentally engaged. Yet, for most, there can be a lot of sense in picking just 1 to 3 in order to retain focus and build experience first. Many continue to ask if they should even become real estate agents before they begin investing for themselves.
Realtor or Real Estate Investor?
There are a number of perceived advantages to becoming a real estate agent, before actively investing for personal gain. This includes being able to learn more before putting money on the line, being able to bring in other income while looking for deals, increasing credibility and contacts, access to the MLS, and potential discounts on buying and selling properties. Some of these benefits are good, including obtaining access to agent only information in the MLS. Other anticipated perks may not be as valuable as expected.
It is also critical to understand the time and money requirements to become a Realtor. It’s not cheap, and it isn’t an overnight deal. For many, this path can be more of a distraction, and could potentially take them further from their ultimate goals, rather than putting them on the fast track. Know what you really want, and weigh the pros and cons of each option before starting.
New Trends and the Most Important Move of All
For the first time in a long time we are seeing many real estate investors attempt becoming rental property landlords and acknowledging that they plan to add wholesaling later. Many are under the impression that wholesaling is more complicated and advanced than rentals. However, truly unbiased real estate experts would likely agree that the attributes of wholesaling better lend themselves to new investors. Wholesaling can be a long term business, and potentially the only strategy many will ever need. It offers easier entry than most other options, requires little or no money, and offers as close to zero risk as could be asked for.
Those starting out lean could be well served to start by wholesaling and graduate into other strategies as they learn the ropes and bulk up their financial positions. However, all the debating in the world means nothing if you never get started. So get started and grow.