Real Estate Investing Strategies-Choose the Right One

Buy & Hold

This perhaps is the most common investing strategy. The "Buy & Hold” strategy means purchasing a property and then either renting it out, living in it or just locking it for a longer period for appreciation. This probably is the simplest form of Real Estate investing. Essentially, a "Buy & Hold” investor prefers to create a source for recurring income by renting the property. Or he simply holds the property until it can be sold for a gain in future. Major advantages of this strategy is that  during the time that you hold the  property or rent it out, the loan is paid each month, thus decreasing your liability and increasing equity in the property.

One of the most important things for a new “Buy & Hold” investor to understand is how to evaluate deal. The most common mistake that new investors make is paying higher amounts because they don't understand property valuation properly. Other common mistake is underestimating expenses, making wrong decisions on tenant selection, and/or failing to manage property properly. These mistakes can very well be avoided if you simply learn the business. Jumping in without proper education & knowledge can be problematic both financially and sometimes legally also.

For proper & profitable “Buy & Hold” strategy, one should learn how to properly evaluate a property based on different factors like Location of property, its condition, market rate, market condition and may be returns on same. An intelligent investor is one which knows when Real Estate market is at its low, means prices are low & inventory is high. He buys and holds property. When the market becomes over-heated, an experienced “Buy & Hold” investor stops buying and waits for things to cool down. During slowdowns they simply continue to hold their properties. Some “Buy & Hold” investors never sell a property easily, instead choose to clear the loan and live on the cash flow from rentals.

Check the Image below for an example of how Real Estate cycle works:

There is much more to “Buy & Hold” than we can visualize. But if you can learn how to evaluate and buy good deals, find quality tenants and manage property well, you will be on your path to creating wealth from this market.

Flipping Real Estate

Another popular strategy for making money in Real Estate, is flipping properties. House flipping is the practice of buying a property at some discounted price, renovating it and then selling it at a higher price. In reality, the flipping model is quite similar to "Buy Low & Sell High" model.

The most popular type of property to flip is the single family home. Following a Thumb Rule, popularly known as 70% rule, an experienced house flipper will buy a home for 70% of its current value less the money required for renovation, improves it and sells at full price.  For example: Home-A should be worth Rs.1 Crore if it were in good condition, but it needs Rs. 20 Lacs for improvement/renovation. A typical house flipper will purchase the home for Rs.50 Lacs (1 Crore x 70% - 20 Lacs) and sells it for the full value i.e. Rs.1 Crore after full renovation. This is simply a Thumb Rule, and actual numbers may vary from case to case

One of the key factors in flipping a property is speed. A Property Flipper will attempt to buy, rehab and sell the property as quickly as possible to ensure maximum profitability and to avoid expensive carrying costs. These carrying costs include monthly bills such as financing interest, property taxes, utilities and any other maintenance bills etc.