By Stefano Sciandra
Your commercial awareness dose.
The 2020 pandemics and the economic uncertainties caused by it have pushed many people towards the world of trading, investing, and income diversification. Although challenging, exciting, and rewarding, it doesn’t guarantee fast money, and it requires a huge amount of effort, commitment and willingness to learn. The world of investing, though, had become very popular even before the pandemics, especially thanks to the rise of the financial independence movement. Alongside forex trading and investing in stocks, Real Estate investing has become a very widespread phenomenon and its many strategies and styles make it very engaging.
Being two major economies, with record rates of legal immigration, and with high demand in good quality housing, this article will be based on strategies widely present on the US and the UK markets, which share somehow a similar approach to Real Estate Investing. Some of these strategies are also used in some countries, while potentially being illegal in other countries. A very good thing about Real Estate is that each area has its own community of students, mentors, investors, and agents, who are welcoming and helpful. Networking is in fact, a key element to be able to succeed in this industry.
“Fix and flip” is a very simple and widespread technique. You buy a property at a discount, and you sell it at a higher price, after renovation. However, there is a reason why properties are discounted, meaning the costs of renovations can become too high to sustain, and you might risk turning your flip into a flop. If the logic behind this strategy is to have a quick transaction, “buy and hold” is the total opposite. In fact, you buy a property as a long term investment, holding on to it for a time and then sell it when market conditions allow you to sell it for a higher price. While holding on to it, you
can rent it out and generate cash flow, that will help you pay the mortgage on it.
“Wholesaling” is the process of finding excellent deals on properties, connect the seller with the real estate investor, and of course getting paid for it. A very popular new strategy, applied to the renting market, is the “rent to rent” strategy, whose logic is to rent a property from a homeowner at a price and then rent it out to yourself at a higher price, making a profit. “Live in then rent” and “live in then flip” are grounded in the fact that once you have acquired a property, you live in it for a while, and then you rent it out or renovate it and sell it. This is done primarily for tax reasons.
“House hacking” is a typical American term used when you buy a house, convert its areas into apartments. You move into one these and rent out all the other new private areas. As seen for “buy and hold”, this will guarantee you a cash flow, that will allow you to pay the mortgage and to save money for other investments. In the UK, this can be done but it doesn’t have a specific name for it. However, if you decide to rent out parts of your property while living in as a landlord/landlady, tenants will be called lodgers. A “house in multiple occupations” (HMO) is another specific British term to describe properties where bedrooms are rented out as private, but tenants share common areas, such as bathrooms and kitchens.
A strategy that has gained a lot of attention lately is the “BRRRR investing” (not a typo), which stands for buy, remodel, rent, refinance, and repeat. Investors buy properties, renovate it, rent it out, generating income, that will give them equity to repeat the process. You can also become a player in the property market, by investing in REITs, an acronym for Real Estate Investment Trusts. These are companies that finance property projects, collect rents on them, trade on major stock exchanges and pay a dividend to their shareholders.
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