Real estate is one of the best investments you can add to your portfolio. A property holds its value well over time, making it ideal for diversifying investment portfolios. Property prices fluctuate in the same way as other market assets do. However, real estate has a lower correlation to the stock market, so it’s a much more stable investment than most securities. 

There are several types of real estate you could invest in. But you can also use several real estate strategies to generate cash flows. These real estate strategies have different pros and cons. So, the strategies you choose will depend on several factors.

The following guide will highlight some criteria for choosing an investment strategy. It will also outline some of the most common real estate investment strategies you may consider.

How To Choose An Investment Strategy

There are no hard-and-fast rules regarding which strategy you should use. As a result, it's difficult to recommend a one-size-fits-all approach to real estate investing. It all boils down to personal preference and the nature of the real estate industry in which you operate. That being stated, here are some factors to consider while deciding which strategy to use.

1. 1. Consider Your Preferences

Knowing your personal preferences is the first step in formulating a strategy. Choose an investing strategy that feels right for you. For example, property flipping might be your ideal strategy if you enjoy undertaking do-it-yourself projects. If you dislike being hands-on, more passive real estate investing options, such as crowdfunding, may be suitable. Alternatively, to amass wealth over time, you should explore long-term strategies that entail buying and holding investment property.

1. 2. Define Your 'Why'

Defining your goals is one of the best ways to determine which real estate strategy is best. You must ask yourself what you truly want to accomplish by investing in real estate. What are your financial objectives? Do you want to save for retirement? Do you want to run your own real estate business? Whatever the case, you must define your 'why' since it will provide you with direction and purpose.

One of the most common mistakes people make is setting unclear goals. When setting goals, use the SMART (Specific, Measurable, Attainable, Realistic, and Time-Specific) criterion. Clear goals will assist you in developing practical strategies that will lead to success. You won't know what to aim for if your goals are vague. So always remember to align your strategy with your goals.

1. 3. Educate Yourself

After you've established your goals, you should educate yourself. It would help if you educated yourself about the fundamentals of real estate. But more importantly, research the type of real estate you wish to invest in.   

Every real estate investing strategy has advantages and disadvantages. So the more information you know, the better. Study the intricacies of each strategy, skills required, and capital requirements. That’s the only way you’ll be able to figure out which strategy is best for any situation. Fortunately, there are several internet resources available to help you learn more.

1. 4. Know Your Risk Tolerance

Every investor has a different risk tolerance. Therefore, choosing an investment strategy requires knowing where you fall on the spectrum of risk tolerance.

If you have a high-risk tolerance, riskier investment strategies like hard money lending might appeal to you. Riskier investments often offer higher returns. Therefore, it may be worthwhile to take the risk. However, if you have a low-risk tolerance, you should stick to safer investment strategies like home hacking.

It’s usually the case that people who take a conservative approach to investing have a lower risk appetite. Nonetheless, it is critical that every investor understands their risk tolerance and doesn’t go beyond their threshold.

1. 5. Desired Level Of Control

You must determine what level of control you want over your real estate investments. Therefore, you must establish whether you prefer being active or passive investors.

If you want to avoid getting too involved in property management, passive investing options such as crowdfunding and syndication may be suitable. You might also purchase rental properties and hire a maintenance management firm. However, you may pursue the self-management route if you desire complete control over your property.

1. 6. Level Of Experience 

If you’re new to real estate investing, you may not have much knowledge about how the industry works. Plus, you may not have a lot of capital to start with. So, when choosing a strategy, you need to choose one that is the least risky and will guarantee a return on your investment. It may include strategies like live-in flipping or house hacking.   

But the more experience and knowledge you gain in real estate, the riskier bets you can make. Plus, you may have more financial resources and better credit. It is the stage where you could use riskier strategies like hard money lending and rental debt snowballing. You could also start buying and flipping properties for properties.   

Overview Of Real Estate Investment Strategies

1. 1. House Hacking

An average mortgage requires a sizable down payment. They may be prohibitive for a homeowner in some instances. However, you may still invest in real estate and profit through house hacking. It is when you buy a property and rent out a portion of it. It might be a guest home, a duplex, a triplex, a fourplex, or even spare bedrooms.   

Renting out a portion of your home allows you to earn revenue that you may use to cover a portion of your mortgage payments. This technique is ideal for a first-time investor since it provides you with hands-on experience as a landlord. Should you want to invest in more properties in the future, you’ll have an idea of what it’s like to be a landlord.   

1. 2. Property Flipping

Property flipping is an investing strategy that entails purchasing, renovating, and reselling properties for a profit. House flipping may seem simple, but it requires tact and strategy to succeed. It’s not just about buying an old property and flipping it. It’s about buying the right kind of property and then selling it.

You must evaluate location, renovation, and redesign costs, among others. As a result, property flipping necessitates expertise to buy the right property. If you buy the wrong property, you may have problems selling it or incur a loss on the flip.

Furthermore, remember that flipping properties may subject you to greater capital gains tax rates. As a result, this strategy carries a considerable degree of risk. Therefore, it’s better suited for more seasoned investors. However, if you're a novice investor prepared to work hard and learn, you can succeed.

1. 3. Live-In-Then-Rent

This strategy entails investing in a property that you will eventually rent out. So this will be a house you live in for a while before it becomes an income-generating investment. Unlike house hacking, you will not rent out a portion of your home.

It is also a good strategy for investors who want to create wealth in the long run. If you use this strategy consistently, you may amass a modest portfolio of rental properties over time.

1. 4. Live-in-Flip

This strategy enables you to live in a fixer-upper that you remodel while living there. You may make all of the changes or upgrades gradually. Then, when you’re ready, you can sell the house at a profit. The benefit of this approach is that you may generate a tax-free profit on your sale. Moreover, this strategy can be highly lucrative, especially if you qualify for a low-interest mortgage.

1. 5. Wholesaling

This strategy is better suited for more experienced investors. What happens is that you look for a good deal on a certain property. Then you find a willing buyer and seller and facilitate a sale. Your payout will be the difference between the selling price and the amount paid by the buyer. Wholesaling could be a great strategy if you’re a good salesperson.

1. 6. Real Estate Investment Trusts (REITs)

REITs may be a great investment strategy for those who don’t want to be directly involved in property management. They operate like mutual funds in that you can have a stake in the trust based on how many shares you have. You can then earn a dividend based on the trust's profits. REITs are typically owned and run by companies that own real estate. REITs are a great investment for the passive investor. Only invest in the right REIT.

1. 7. Hard Money Lending 

Consider offering short loans to real estate investors if you have a large amount of cash. These loans can be quite lucrative because they have high-interest rates. However, there is a higher risk associated with this because the likelihood of borrowers defaulting is high. Before you commit to anything, you should properly educate yourself on this one. 

1. 8. Rental Debt Snowball

This technique will allow you to buy and pay off several rental properties. The strategy entails collecting all of your rental property cash flow. Then, using those cash flows, focus on paying off one property's debt at a time. This method is fantastic since the rate at which you pay off debts will accelerate (snowball) over time. With this strategy, looking for quality rental properties and mortgages with reasonable interest rates is important.

Conclusion 

To select the best strategy, you must understand your preferences. Moreover, it would be best to educate yourself about real estate as much as possible. The more you know, the better. 

There is no one-size-fits-all strategy for real estate investing. All real estate investment strategies have upsides and downsides. So, know your preferences and risk tolerance, create SMART goals, and learn how the real estate market works. These are the keys you need to select an appropriate investment strategy.