If you’re trying to figure out what the best way to invest in real estate is, you are not alone. There are many different ways to invest in real estate. Each of these methods has unique features and characteristics. Choosing which technique works best for you will depend on your current situation and what you are looking to achieve from real estate investing. Furthermore, just because this an investment method works best for you now, does not mean it always will. Real estate is cyclical and constantly changing, which means you always have to be on your toes.
To briefly cover the two main method of real estate, there is flipping and holding. For example, if you want to make a lump sum of cash quick then flipping a house may be best. However, be aware, and properly plan for, the high capital gains tax you will receive on the profit you make. Alternatively, if you want long-term passive income, buying and holding rental properties would be the best answer. The IRS created a 1031 exchange, which allows an investor to sell a property and reinvest the money into a new property, a great means to defer all capital gains.
Technically, there is not a single, best way of how to properly invest in real estate. Investing in real estate requires constant critiquing. An individual needs to assess and adjust their situation on a consistent basis. How to properly invest in real estate also involves staying up to date with the latest market trends as well as the predicted market trends. Doing so will help prepare for future moves. For example, if there is an election is coming up, there is usually a large amount of uncertainty in who will be elected and what will happen, therefore, laying low and avoiding any drastic changes to your investment strategy is wise.
Starting small and then expanding your reach, to take on more and bigger projects is, in my opinion, one of the best ways to invest in real estate. For example, when you first begin investing, it would be wise to flip one house at a time. After you get your feet wet and are comfortable taking on more, try flipping two at a time, and then maybe even three! From working with investors who flip full time, the most common number of houses to flip at a single time is 2-3. The highest I have heard is 5. This is a logical approach and a great way to set goals for yourself. Small goals lead to large accomplishments.
Last, but not least, stick to your wheelhouse and diversify your portfolio. A common rule of thumb is once you find what you are good at, laser focus on it. For example, if you are a strategic buy and hold investor, try not to veer off path, when you are not equip or knowledgeable enough, and flip a house. The grass is always greener on the other side, concentrate on your bread and butter. To continue with this example, if you hold rental properties and started with a few single-family houses, maybe try a multi family next. Before you know it you just may own a 15+ unit apartment complex. These different ways to invest in real estate will help you understand how to properly invest in real estate.
To learn more about how to get into investment real estate check out, “How to Get into Investment Real Estate? Where do I start?”