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The methods for getting started in real estate investing range from strategies that are active to others that are more passive. Many methods fall in between those extremes but all have their own level of associated risk. Here we'll touch on some of the lower risk ways to get started with property investment.
Buy, Remodel, Rent, Refinance, Repeat is a method that is also known as BRRR. With careful planning and execution, it can be an effective way to start building a portfolio of rental properties without using all your cash.
The BRRR method basically involves purchasing a property that needs improvements and is being sold for under its potential value. First, use short-term financing or cash to buy the property.
Once you've remodeled, rented it out and otherwise stabilized it as an income generator, you refinance the property using a more conventional mortgage. Doing so could free up most of the original capital for your next purchase.
2. Own Then Rent
This strategy involves choosing a house that works as your home and as an investment rental property in the future. There are numerous advantages to adopting this method.
You can improve and remodel the home while it accrues equity. Choosing projects that will return the most return on your investment is crucial.
Once you've done so, you can level up to another home. After doing this a few times, you can build up a small real estate portfolio.
3. Own and Rent Out
A home such as a duplex, triplex or fourplex has built-in investment and profit potential. You live in one of the units while renting out the others. This strategy also works if you purchase a home with a guest house, mother-in-law apartment or a basement with a separate entrance.
Using this strategy provides you with valuable time to build experience as a landlord or property manager. In this scenario, you'll live in close proximity to your renters which could be an adjustment if you're moving from a single-family residence.
4. Live in Then Flip
This strategy is a variation on the others already listed. Once you purchase a house, move in and start making improvements. Wait a minimum of two years and then sell it for a profit.
Be sure to follow the IRS rules regarding profits from home sales. By doing so, you won't be subject to the taxes on that money up to $250,000 for individuals and $500,000 for couples who file jointly.
This list is by no means an inclusive one. It does, however, provide you with actionable steps you can take to get started as a real estate investor.