- Real-estate investing is the practice of buying, selling, managing, flipping, or renting property for profit.
- The most successful investors are highly adaptable. Jacob Blackett, the CEO of Holdfolio and founder of SyndicationPro, lost $70,000 on his first deal. Today he has a portfolio with 1,000 units.
- They're also rigorous about choosing the right strategy, methodology, and location for their investments.
- To aid your decision-making, we've centralized months of reporting into real-estate investing trends in the guide below.
- Visit Business Insider's homepage for more stories.
Real-estate investing is a path to passive income, financial independence, and the possibility of securing generational wealth.
In the US, the allure of real estate hasn't let up. In a recent Gallup survey, of the 1,012 US adults polled, 35% said that real-estate was the best way to build long-term wealth.
And in the past several years, real estate has created returns comparable to other investment assets.
According to the National Council of Real Estate Investment Fiduciaries, expected annual total returns on apartment investments have fluctuated between 6% and 15% since 2012. Over the same period, the S&P 500 had an annualized return of about 10%.
To help you get going, we've collected insights into mistakes to avoid, how to scale your business, and what it takes to nail the management side of property management.
You can jump to a section through the table of contents here, or you can just scroll down to take things one at a time.
- Let's begin with the basics
- Start building around a strategy
- Develop your method
- Deploying your strategy really is a matter of location, location, location
- Check your assumptions
- Get started with the whole landlord thing
- Consider hiring a property-management team
- Alternatively, go after short-term returns
- Keep tinkering with your routine
Let's begin with the basics
Real-estate investing is the practice of buying, selling, managing, flipping, or renting property for profit.
Some people make real-estate investing their full-time job, but for many it's a side hustle.
Investors come from a variety of backgrounds, including servers, advertising executives, and musicians. The key is to pick the strategy that's right for your resources and goals.
Goals for real-estate investing can vary widely. For example, a "fix-and-flipper" is just looking for a few big pay days, while the passive-income specialists desire consistent cash flow.
Start building around a strategy
There also many real-estate investing strategies. Each possesses a mix of upfront costs, renovation work on properties, ownership, and exit strategies.
The processes have varying timeframes and can result in any number of outcomes, with each resulting in strong cash flow — if successfully executed.
There are three main strategies focused on turning properties around as quickly as possible, usually in a year or less.
- Fix-and-flip: purchasing a distressed property, fixing it up, and selling it for (hopefully) a hefty profit. Takes about three to six months.
- Wholesaling: contracting a property — usually a distressed one — with a seller, then assigning it to an end buyer. This approach doesn't involve the actual purchase or sale of real estate.
- BRRRR: buy, rehab, rent, refinance, repeat. A slightly longer-term and more labor-intensive version of fixing and flipping, with more steps in place. Life cycle is about six months to one year.
Detailed below are three other strategies conducted on a longer time horizon:
- Multifamily investing: purchasing properties with more than one residence. This one's longer-term, so expect to buy and hold if cash flow is your goal.
- House hack: leveraging extra rooms or units of your primary residence to cover expenses. This can begin as soon as your purchase the property and find tenants.
- Syndication: pooling capital from several people to invest in properties that would otherwise be unaffordable. Expected investment is about five to seven years.
The strategy you choose should reflect you and your goals. House hacking makes sense if you don't mind living with other people, but wholesaling is the path to profits without a large initial cash outlay. It's about fit.
That's why Joe Fairless, a founder and partner at Ashcroft Capital, thinks it's paramount that an investor align their investment strategy with their personality. For him, there's no universal cookie-cutter solution.
"Really it depends on the person's skillset," he said. "If you double down on what you're really good at, then good things are going to happen and you'll enjoy yourself."
Develop your method
The method you use is really a decision tree off the strategy you employ.
You need to take a scientific approach.
For example, the house hacker typically invests in multifamily rental properties, sometimes living in one of their own rental units while collecting rent from the others until it's time to move on to the next property.
For real-estate wholesaling — a match-making approach where the investor contracts a property with a seller, then finds an end buyer, all without ever buying or selling themselves — speed is crucial. That's because the middleman wants to find a buyer before the initial contract with the seller closes.
To that end, it's crucial for a successful wholesaler to preemptively develop a network of builders who may be interested in buying.
It's also advisable to have a process in place for tapping resources such as geographic mapping — which can provide crucial structural detail around a property — and a local register of deeds, which can save time when dealing with clerical issues.
So depending on the strategy you choose, you need to have the contingencies of success mapped out.
And, of course, your location.
Deploying your strategy really is a matter of location, location, location
Just like your strategy should fit your personality, it should also fit your location.
Location is the initial determiner of your investment goals, so strategizing how much money you can spend on location is all the more important.
The more money you can spend on location now, the more you can likely collect when it comes time to see returns.
For the sake of brevity, let's go over two strategies and how they fit into markets: long-term investing, like landlording, and the shorter-term option of house flipping.
At Business Insider, we spend much of our time digesting market trends.
Industry data suggests that nationally, according to Redfin, the top four largest markets that saw the biggest year-over-year decrease in median sale price in June were Baton Rouge, Louisiana; Charleston, South Carolina; Youngstown, Ohio; and Urban Honolulu, Hawaii.
In addition to a drop in sale prices, Redfin found that all four markets still hold a fair affordability ratio, making them potentially ideal markets for first-time investors looking to learn the ropes.
Keeping it local helps.
Investment Brokerage vice president Mike Hills, who has an extensive property portfolio valued at over $8 million, emphasizes that a smart investor's strategy is to stay relatively close to their investments geographically, since that allows for property managers to keep a close eye on projects while maintaining work-life balance.
That said, he and his firm are focused on investments in cities such as Denver, Austin, Boise, Phoenix, Colorado Springs, and Charlotte, all of which, Hills says, are hot markets investors should keep in mind.
What Hills looks for in deals is the "20-year picture," he told us. What's most important is a property's long-term positive cash flow, net value appreciation, and overall profitability.
In other words, as long as the property pays for itself and then some, while appreciating in value long term, an investor should be in a position to profit.
But not everyone is looking for long-term investments. And you have to choose your market accordingly.
Consider house flipping. It surged in popularity through the mid-2000s and 2010s as a result of cheap property values and a surge of reality-TV shows. But the practice has had a rough time in 2020.
In the first quarter, the house flipping rate hit a 14 year high, while flipping returns saw a nine-year low, per a new report from ATTOM Data Solutions.
In its recent ranking of flipping markets, WalletHub measured locales in terms of market potential, renovation costs, and quality of life. The top cities were Sioux Falls, South Dakota; Missoula, Montana; Rapid City, South Dakota; Billings, Montana; and Peoria, Arizona. But note, these estimations were made before the pandemic came to the US. Arizona is a hotspot as of this writing, but quality of life and costs of renovation places like Montana and South Dakota should be largely unchanged.
The key is that the math adds up in your favor: These cities were seen as attractive because of relatively low costs of renovation compared to quality of life and market potential, which means you can save on renovations and still have a high likelihood of selling.
Check your assumptions
You don't have to be the perfect already-rich guy to succeed in investing. As Business Insider reporting has found, in some cases it's the opposite.
Consider Ashley Hamilton, a single mother of two in Michigan. She started her journey as a real-estate investor while making $20,000 a year as a server. Her lack of funds was advantageous.
"Not having money kind of worked in my benefit because I got a tax return at the end of the year," she said. "By me only making $20,000 — and I had two kids — I was able to get a $5,000-to-$6,000 tax return."
That made it possible for her to start buying single-family homes, which sold for between $3,000 and $6,000 in her home market of Detroit. (It's important to note that Detroit real-estate prices have been an outlier since the Great Recession.)
Hamilton said she would wait for her return to hit her bank account, parlay that capital into a purchase, and put a tenant in the property.
Hamilton then repeated the process until she'd accumulated 10 units.
Now she's found herself in a situation where she's able to use cash from her existing properties to make repairs and renovations. She is looking to add to her growing portfolio.
With myriad variables to account for in a real-estate investment — lenders, contractors, appraisers, tenants, and repair costs, to name a few — it's no wonder some investors run into issues early on.
But not every maneuver, deal, or estimate goes according to plan.
Take Jacob Blackett. He's the CEO of Holdfolio, a real-estate broker and general contractor, and the CEO of SyndicationPro, an online real-estate investing platform.
With more than 1,000 units in his portfolio, he experienced challenges firsthand when his first two deals quickly turned sour.
Although Blackett was confident in his financial estimates, he couldn't account for a fickle contractor. When all was said and done, Blackett had accumulated $70,000 in losses.
"Just because you put numbers down on a piece of paper or in a spreadsheet doesn't make them reality," he said. "At the end of the day, the contractor did not work out."
Joe Fairless — a founder and partner at Ashcroft Capital with 7,000 units under his belt — ran into other problems.
Fairless' setback stemmed from a misunderstanding around which metric he should be watching when filling units.
He mistakenly focused on physical occupancy — the sheer number of inhabitants — rather than "economic occupancy," which tracks how much is actually being paid in rent.
It led to his miscalculating and overestimating how much money he was bringing in.
"All of it was sloppy on my part," he said. "Ultimately, all roads lead back to me, and just getting better at looking at things and doing due diligence. Those are some lessons that I learned as a rookie that I think will be helpful for others as well."
The takeaway: The road to success isn't necessarily going to be a smooth one. You're going to have to adapt and overcome.
Get started with the whole landlord thing
Sam and Daniel Kwak, who accumulated 75 rental units in their first year, swear by an eight-step guide that includes everything from what red flags to look for when touring a property to — most important — sourcing out a good deal.
"There is so much competition and cheap capital happening in the general popular market space that it's overinflated," Daniel said.
He added that, early on in his career, he'd go around and call all the buildings that had "for rent" signs and ask the owners if they would be interested in selling.
Another trick, Sam said, is targeting signs that are handwritten, because they suggest the buildings are owned by a person, not a property-management company.
In addition to going out into the field and finding deals themselves, the brothers said the relationships they've built with local property managers have landed them many deals.
"Whenever somebody wanted to sell, they would notify us," Daniel said.
But there's more to scoring a good deal than finding a property in good shape.
On a recent episode of "The Side Hustle Show" podcast, real-estate investor Dustin Heiner said you want to make at least $250 off your properties every month.
Making $50 or $100 a month off a property is just too little, he said.
"If you extrapolate that out, $100 a month is literally $1,200 a year. If you have one bad thing — like a roof go out — there goes your entire profit," Heiner said.
Of course it is important to have savings set aside to cover things like repair expenses, but, at $100 a property, that doesn't leave a ton of money to live on, he added.
If you only seek properties that are going to make you $250 or more — once all other costs like capital expenses, repairs, and property management fees are paid for — then you'll have a "life-changing business model," Heiner said.
But the key is to have multiple properties in different areas making you passive income each month. Not only will this bring in more money, but it will limit the risk of the investment.
Becoming a landlord has a practical aspect too. You have to find tenants, which is a matter of sourcing out a market with high demand, you have to set up a billing system to collect payments, and you have to have the right team.
And there are tax strategies to be aware of that can make a big difference to your long-term investment.
Strategies such as a 1031 transfer or IRS sections 1033 and 121 are wealth builders that investors can take advantage of to maximize gains.
Consider hiring a property-management team
Depending on the scale of your portfolio, you might need a property-management team.
But it's important to find the right one.
"When hiring a property-management team, you need to find one whose interests actually align with yours," Atlas Real Estate VP Mike Hills said. "The tricky part is, you may find a lot of them don't."
Though many investors turn away from property management because of the typical 8% to 10% service charge, a property manager is a must-have for any serious investor, Hills added.
"People think they're saving money not using a property-management team, but people who manage themselves don't put a premium on their time," he said.
"They don't treat it like a business, and they get attached to their tenants."
He said investors often don't raise the rent when it needs to be raised, and investors end up losing out on revenue.
Though hiring a team can be tricky, the right one will find the deal, do the work, and manage the property at a positive net profit, Hills said, adding that property-management seekers can be anyone from beginners to tenured investors.
Alternatively, go after short-term returns
Not every investor is looking for a decades-long commitment.
The property flippers and wholesalers are operating on a much shorter timeline, usually a year or less.
From the perspective of a wholesale real-estate investor, the idea is to contract a property from a seller — rather than buying outright — then assign it to an end buyer before that contract closes.
At no point do investors actually purchase or sell the properties themselves.
That middleman approach necessitates a quick turnaround, although multiple-unit properties naturally take longer to offload.
If done right, the process will culminate in a hefty payout from a professional developer.
Time is also of the essence for house flippers. The quicker properties can be turned around, the more money the investor will make.
J Scott, cohost of "BiggerPockets Business Podcast," said he has flipped hundreds of properties despite starting with no experience.
He also emphasized speed, adding that it has the secondary effect of insulating a seller from broad market gyrations.
"I'm focused on deals that are going to go quick," Scott said. "I'm focused on those deals that I can be in and out of in two, three, four months.
"That way, even if the market starts to turn, we're probably not going to hit the worst part of the downturn before I'm ready to get out of those properties."
Scott uses the 2008 housing crash as a worst-case-scenario stress test for his investments.
He said all these elements, when pieced together, have resulted in about 450 house flips.
So what do you do with the money generated from these short-term strategies? It's up to you.
Keep tinkering with your routine
"I created this routine where I get up every day and I do these rituals," Bess Freedman, the CEO of Brown Harris Stevens, previously told Business Insider.
"It's kept me positive. It's kept me focused. You have to do it if you're going to be able to survive this successfully."
Freedman told Business Insider that she dedicates one hour in the morning to answering emails and returning phone calls, which is what top Manhattan broker Michael J. Franco does from 10 a.m. to noon.
"It is so important to keep in touch with as many people as I possibly can during this period," he said.
"Reaching out and asking people what I can do for them — other than sell their apartments — has not only kept my mindset right, it is the right thing to do!" he wrote to Business Insider.
All the daily routines of real-estate professionals we've reported on include at least an hour of personal time, whether it be for watching TV, exercising, or going out for dinner.
Dan Tubb, senior director of sales at The Towers of the Waldorf Astoria, in New York, like to go out for dinner at 7:30. Yes, with outdoor seating.
As for Lior Rozhansky, a broker and investor with a $9 million rental portfolio, consistency in routine is everything.
His mornings are for some kind of exercise, usually running.
"It's a game of just how much you want it," he said.
His advice to agents starting out? "Be prepared to work insanely hard."
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