Invest Smart: Real Estate Strategies for the Modern Investor

January 8, 20246 min read
Invest Smart: Real Estate Strategies for the Modern Investor
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Key Takeaways 

  • There are a number of ways to invest in real estate, whether it is directly or indirectly. 
  • Potential benefits to adding real estate to one’s investment holdings include income production, capital gains, and portfolio diversification.
  • There are also alternative investments available to investors, including residential rental investing, rental property investing, and discounted note investing.

There are a number of potential benefits to adding real estate to one’s investment holdings. Those include income production, capital gains, and portfolio diversification.

There are also several ways to participate in the market, with varying risks and rewards. However, the possibilities can be overwhelming. To help investors sort through the options and invest smart, here are real estate strategies for the modern investor.

Is it Simple to Invest in Real Estate?

That depends. After all, there are different ways to invest in real estate, including indirectly. That often means purchasing shares in a fund or a privately or publicly held company, such as through a trust. There is also direct investing, which commonly involves owning an income-generating rental property.

As with any other investment, there are advantages and drawbacks to real estate investment. In addition to the benefits listed above, there is the possibility of property value appreciation and protection against inflation. 

Depending upon the investment strategy chosen, possible disadvantages may include negative cash flows, liquidity issues, and market unpredictability. There also may be problematic tenants and high vacancies.

Popular Real Estate Investing Options

Here are the most common options for real estate:

  1. Investing in Single-Family Rental (SFR) properties. This means investing in standalone homes and renting them out. Potentially, this approach can yield cash flow, property value appreciation, and bank loan leverage for financing. Possible drawbacks can include difficulties sourcing deals, low rental income, and tenant vacancies.
  2. Flipping properties. This strategy involves purchasing houses, renovating them, and selling them for profit in a short period. Cons can include property with major, undisclosed problems, misunderstanding the market, and higher taxes and holding costs. But gains can include quick profits, process autonomy, and an understanding of buyer needs.
  3. Live-in flipping. This approach involves the investor moving into a property while they update it. To make it lucrative, investors can use owner-occupied financing and low-interest mortgages. If the house is the investor’s main residence for two to five years pre-sale, no capital gains taxes are required. However, there may be cost and cash flow issues.
  4. Live-in-then-rent. Unlike live-in flipping, where the goal is to sell the property, the aim here is property rental. Investors can use appreciation to refinance the property, then use equity to purchase their primary residence. Meanwhile, the original property is rented out. With house hacking, the investor lives in part of the property and rents out the rest.
  5. Real estate wholesaling. The wholesaler contracts with the seller, then sells the contract to an investor. Steps include finding distressed properties, negotiating below-market prices, and estimating repairs and FMV. Next is assigning purchase and sale pacts to other investors. Key here is networking, marketing, and hiring help to locate properties.
  6. BRRRR investing. This means buying a property under market value, increasing the value through renovation, and renting out the property. Next comes refinancing to recoup the initial investment, then using the profits to repeat the process. The main benefit is the ability to leverage their investment for higher returns. Rehab expenses and high upfront costs are possible drawbacks.
  7. BURL. This is an acronym for “buy utility, rent luxury.” The strategy entails buying under value, renovation, renting, refinancing, and repeating the process. The idea is homeowners may opt to reside in a more utilitarian home and rent out a profitable luxury property.
  8. Real estate investment trusts. REITS are entities that finance or own income-generating properties across a range of sectors. They can offer tax benefits, competitive returns, and long-term capital appreciation. Equity REITS buy, manage, build, renovate, and sell income-producing properties. Mortgage REITS invest in originated or bought mortgages.
  9. Real estate investment groups. A REIG is an entity with multiple partners. Members pool money and knowledge to buy income-generating property using any number of strategies and structures. For example, some may require little active participation. Unlike REITs, REIGs have no restrictions on size, and no guidelines.
  10. Rental debt snowballing. This is a strategy for paying off multiple rental property debts. It involves combining employment savings with rental income to first clear the lowest balance loan, then repeating the process until all debts are paid. Advantages here include measurable results and flexibility during temporary financial setbacks.
  11. Crowdfunding. This is a way for investors to raise funds online for pooled acquisitions of high-quality commercial and residential properties. Strategy benefits include the potential for regular income and profits. Possible drawbacks include illiquidity and lockup periods associated with shares.
  12. Private lending. This strategy involves investing in real estate debt, but can also mean higher fees and interest rates, as well as the risk of borrower default. It is important here that private lenders have real estate investing experience and understand how to protect themselves in case of foreclosure.

Investing with Yieldstreet

There are also alternative investments available to investors, including residential rental investing, rental property investing, and discounted note investing.

Entering the market through Yieldstreet is another option. The leading alternative investment platform, on which more than $4 billion has been invested to date, offers private-market opportunities. Such offerings are generally less volatile and include real estate. In that asset class, opportunities include real estate equity and a Growth & Income REIT. These are highly vetted opportunities that once were the exclusive province of the top 1%.

How to Implement a Real Estate Investing Strategy

Before entering the real estate market, though, investors should:

Set goals. Establish short- and long-term objectives based on personal goals and investment aims and align one’s strategy accordingly.

Decide on an investment option. There are active investment strategies such as property flipping, wholesaling, and traditional renting. By contrast, investments involve putting capital in a venture without day-to-day property management or decision making. 

There are also various property types in which to invest, including residential, commercial, and industrial. Yieldstreet’s offerings span real estate types.

Secure Financing 

Depending on the chosen strategy, and factors such as personal credit, there are a number of financing options available. Those include hard money loans, conventional mortgages, and seller financing.

Whatever strategy is chosen, remember that real estate in the private sector is an “alternative” asset class. This means that it has low correlation to volatile stock markets. Real estate also can diversify investment portfolios, reducing overall risk and possibly improving returns. In fact, diversification is key to long-term investing success.

Invest in Real Estate

Unlock the potential of private real estate markets.

Alternative Investments and Portfolio Diversification

Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $10,000.

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

Summary

Real estate investing remains popular as a potential source for steady secondary income. After all, it can potentially offer tax advantages, property appreciation. and leverage. It can also protect against inflation and provide risk-mitigating portfolio diversification. Investors must just choose the best strategy for them.

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

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