Taking the first step is always the hardest. Although investing in the real estate market is among the best ways to have a steady cash flow both in the short and long term, beginners often struggle to decide which strategy to follow to take part in this vibrant industry. One of the most popular forms in the real estate market is through the acquisition of rental properties as it promises stable cash flow and relatively low overhead expenses. So, it’s not surprising that this is one of the specific areas that most newbies in real estate investing are looking to invest in.
But it’s easier said than done as there’s not a single rental property that could guarantee a strong return on investment (ROI) or a consistent cash flow. If you want to have a better chance of growing your investment, here is the best rental property investment strategy for beginners.
1. Invest in Long-term Rental Assets
Acquiring a rental property to lease it out for the long haul is consistently one of the best ways to make gains in the real estate industry. The most important factor that makes traditional assets quite attractive for investors is the relative ease in getting revenue from rental income and the appreciation of the property.
Also, long-term rental contracts could provide a more consistent source of income aside from lowering the property’s turnover rate. It also minimizes the need for maintenance and management compared to short-term rental assets.
Real estate investing for beginners is truly not a walk in the park, but knowing where to buy your first rental property will make or break your investment strategy. The real estate markets in some areas in Utah (e.g. Ogden, Salt Lake City, and Provo), the whole state of Texas, Washington, DC, as well as Birmingham, Alabama, have only been mildly affected by the economic recession brought by the pandemic. So investing in these areas might result in higher gains for your first foray into the market.
2. Invest in Short Term Rental Assets
Another good strategy for starting a rental property business for beginners is to purchase a property for short-term rentals. The idea is pretty simple and it’s quite similar to acquiring a more traditional long-term rental property, but the property will only be open for short-term stays. So, your clients will be charged on a per night basis instead of a monthly or annual fee. Timeshares or vacation homes were one of the best short-term rental assets to have, however, because of the pandemic, the value of vacation homes and the revenue that came with them quickly declined. The costs of keeping this type of property right now would most likely outweigh the benefits and the earnings. If this is the case for you, you should consult with a timeshare cancellation company as soon as possible.
Also, short-term rental properties offer more advantages compared to long-term assets. First, you don’t need to purchase the property outright if you want to list it on Airbnb. You could start your business by renting out a spare room in your own home when you’re traveling. By doing so, you’ll have a better understanding of how the rental market works without fully committing to a full-fledged rental asset that costs a fortune. It will also help you decide if investing in the real estate market is a good fit for you.
The second advantage is that most of the cities and towns in the US are already covered by Airbnb. These properties garner a relatively higher rental revenue and ROI compared to more traditional long-term rental assets. It’s also quite simple to pick the right short-term rental properties that you should invest in nowadays as you could advertise them online. You could find the best short-term assets and the best property investment strategies here.
3. Buy and Hold
If you are a newcomer in the industry and you don’t want to manage a rental business, this is the strategy that fits you most. This strategy requires you to invest in a real estate asset and keep it for several months or years until appreciation has increased its value that would make it worth it to put it up for sale.
The best way to increase your chances of success using this strategy is to acquire an asset that’s priced below the market value or in a less developed market that’s expected to see some gains in the next few years. By doing so, the appreciation of the property will be fast-tracked allowing you to make more money in a shorter period.
This strategy is also less complicated than buying and managing rental assets as you don’t need to make a rental property business plan or even manage it. But you’re more likely to see gains from your investment in the long-term instead of receiving rental income in the short term. Still, you could rent out the property that you’ve bought either for short-term or long-term stays and sell them later on to maximize the returns.
4. Fix and Flip
While the first three rental property investment strategy were more suited for passive investors, the fix and flip strategy is geared for more active ones. This strategy is done by buying assets that are poorly maintained and performing the needed repairs and maintenance to bring them back to their former glory. After all of these works are done, you could sell the property to another investor or homebuyer and move on. The profit that you can make should then cover both the purchase price as well as the maintenance works.
The main advantage of buying and flipping real estate properties is you’ll see gains from your investment in a relatively short time and you don’t have to hold on to them in the long term. This makes it perfect for those who are still learning more about the real estate industry before committing to it fully.
But the newbies in the industry would need to see that this investment strategy requires a more hands-on approach. You also need to scour through lots of assets to see which ones are worth investing in, get the right team to do all the repair work, market it to potential customers, and get a good deal in a short time.
The best thing about choosing which rental property investment strategy to go is that you can employ one or more to increase your chances of success. So, even if you’re a first-time investor, you’ll have a tailored strategy that fits your needs and preferences. Whether you are an active or passive investor, you can start growing your investment with these investment strategies.
If you want to know more about investing in the real estate market, read more of our blogs!