Mastering Real Estate Investing: 8 Practical Strategies I’ve used in the last 12 years.

Build your wealth. Start early.

I’m just an ordinary guy — I’ve bought, sold, and rented my way through the years, hoping to retire on that tropical private island in the Caribbean… or maybe just a really nice treehouse.

I hope these real-life strategies will help you up your real estate game.

I love it. I have been doing real estate investing and development for 12 years now. It’s such a diversified and creative industry that fuels my appetite for learning new stuff.

It’s also a way to build long-term wealth and passive income for the future.

THE FUNDAMENTALS.

Let’s go over some fundamentals. I think it's important to cover the basics.

Here is a great overview of the main strategies regarding RISK AND RETURN. Basically, these four strategies are based on the level of risk tolerance and the investor’s objective.

THE HISTORY SNAPHOST.

I am a big believer in the long-term hold. Here is the well-known Case-Shiller home price index representing real estate appreciation over the long term:

There are a lot of creative strategies out there such as: fix and flip, house-hacking, wholesaling, land banking, hard money lending, crowdfunding, etc.

I’ll stick to what I know. I will talk about strategies that either I’ve used personally or through my work in real estate.

Okay, let’s get to it:

1. LONG-TERM HOLD.

This is a simple and straightforward strategy. I purchased my first property with typical 85% debt (mortgage) and 15% equity (my savings) as a long-term hold. The only trick is to get a qualified tenant, whose income has enough cushion and who is not too difficult to deal with.

Takeaway: The only mistake I made was that I waited too long. I procrastinated. I felt I was not ready. Wrong! If you qualify, I urge you to buy now. Don’t wait. You will be thanking yourself 10 years from now.

I get it. Today, as of this blog’s writing, interest rates are high in the 6% range (not as high as in the 80s @ 16%-18%), and so, quite expensive. Keep in mind that this will pass and in two years you can refinance.

2. BUY, REHAB, RENT, REFINANCE, REPEAT.

This is a great strategy to grow your portfolio. Buy a cosmetic fixer-upper at below market value, rehab it, rent it to cover the mortgage, and refinance to cash out. Then use the proceeds from the refinancing to purchase another one.

I have done this on a regular buy-and-hold property. Upon refinancing (“refi”) I used some of the refi proceeds for a down payment on another property.

You can do this process with any property, whether you live in it, or rent it out.

Takeaway: Make sure there is enough equity and cash flow without maxing this out. It’s also a good idea to lock the low-interest rate for a longer period and try to avoid prepayment penalties.

3. FIX AND FLIP.

This one takes a bit more time than most people realize. I partnered up with a good friend to buy property from an auction in Europe as a fix and flip.

Whoa, what a ride! While we didn’t lose any money, it was a big headache. We spent more money on renovations, and then could not sell it. So, we rented it and ended up managing a difficult tenant. The property was located in a small town, so finding a tenant at all was another challenge. We finally sold it after 3 years, which felt like 300.

Takeaway: It’s a cliché, but this is true — location, location, location. Make sure you understand the local market and the cost.

4. LIVE-IN FLIP, or LIVE-IN AND RENT.

Tax-free profit! Move in while you are improving it. This is a wise strategy for several reasons. For one, you qualify for a residential mortgage with favorable terms. You can also reap the benefits of tax-free profit.

The U.S. tax code allows investors to sell a home and pay no taxes on gains of up to $500,000 for a couple or $250,000 for an individual. To qualify, the investor must own and live in the residence for at least two of the five years before the sale.

LIVE-IN AND RENT.

This is just worth mentioning. Buy a duplex with the tenant. This is a great way to get in, having someone to help you with the mortgage. If you have the down payment I would strongly recommend it. Similarly, you can refinance once you build enough equity and use the proceeds to buy another one, or transition to full-blown rental.

ADU.

In addition, if there is a space in the backyard, build an ADU (accessory dwelling unit) and rent it out.

Takeaway: Get prequalified and be patient to find the right deal. If budget is your limitation be flexible with the location.

4. PARTNERSHIP.

Partner up. Leverage your buying power. I partnered up with the same friend to buy and renovate a small boutique hotel with 12 rooms. I was a semi-passive partner. I took a loan under my name, and my friend was the operator. While our original plan was a short-term hold, we ended up holding it for 8 years.

Takeaway: Communicate. Make sure you are aligned on the terms, roles, and responsibilities with your partner. Don’t be afraid to talk about worst-case scenarios and “what if” situations. Also, stay flexible, as things rarely go according to plan.

5. SELLER CARRY BACK.

This is a clever way to reduce the cost of capital and risk. Before Covid, I partnered up to build a house. My business partner and I were clear on our responsibilities and had the proper Joint Venture (JV) agreement. Everything went according to plan.

While there are always some disagreements in partnership, as long as you both have the same vision and business mindset, things will work out.

The seller agreed to carry back 75% of the land cost for one year, so we only paid 25% upfront. This helped us to confirm the buildability assumptions, reduce the up-front cost and risk, and find the right financing solution.

EXTENDED CLOSING.

Similarly, a long-term closing helps you as a buyer to reduce the need for upfront capital and gives you time to do proper due diligence or find capital partners.

Takeaway: Negotiate. This is a great strategy, especially if you can negotiate seller carryback with no interest or a small interest.

6. RENT-TO-OWN (LEASE-TO-PURCHASE).

As an alternative strategy for those who don’t qualify now, a rent-to-own agreement is a decent option.

Here, you rent a home for a certain period of time, with the option to buy it before the lease expires. Part of your rent would go towards the down payment and you can negotiate the purchase price upfront.

This is not to be confused with a lease-purchase contract, in which you are required to buy it.

A few startups are currently offering this service, such as Divvy or Landis (I am not endorsing these startups in any way). Other startups provide cash in exchange for equity such as Unison, Unlock, or Hometap. I personally see these as semi-predatory startups, nevertheless, these are all options you can use.

Takeaway: A rent-to-own strategy isn’t for everyone. Here is a better overview. Maintenance provisions are important to be aware of. Your first option should always be to buy. Counties also have first-time homebuyer programs.

7. CROWDFUNDING.

I have a love/ hate relationship with these platforms. I think they provide great access to real estate at a lower cost. You can make a good return, but you have no control over the projects being successful and can lose your money. High risk, high reward.

This is certainly not for everyone. Platforms like Fundraise, Crowdstreet, or Realtymogul do qualify their offerings. However, the returns on investment are based on the success of the project.

Takeaway: Invest only what you are willing to lose.

8. REITs.

Real Estate Investment Trusts (REITs): This strategy involves investing in a trust that owns and operates income-generating properties, such as apartments or office buildings. Similar to stocks, you can invest in REITs, ETFs, or mutual funds.

These are good long-term investments that should be part of everyone’s portfolio.

REITs have outperformed the S&P 500 over the past 20-year period. Stocks have delivered higher returns in recent years, with the S&P 500 beating REITs over the previous 5- and 10-year periods.

Takeaway: Diversify. Just like stocks, research other options; REITs or ETFs are good options for the long haul.

Let’s sum it up.

KEY TAKEAWAYS:

- Start early. Don’t wait too long. Waiting also costs you money.

- Think long-term. You don’t need to make cash flow right away. There are also tax advantages to property ownership.

- Understand the numbers. What do worst-case scenarios look like?

- Partner up, leverage your money, and increase your buying power.

- Communicate. Be clear up-front on contributions, profit distributions, worst-case scenarios, roles, and responsibilities.

There you have it! Pick a strategy that fits your financial situation, your risk level, and go for it. Just start.

See the big picture. There are usually two types of income: cash flow and capital event (either refinancing or sale/ buyout).

Keep in mind that most investors combine different strategies for different scenarios. You can start with live-and-rent, then move to long-term rental or fix and flip.

“Real estate investing, even on a small scale, remains a tried and true means of building an individual’s cash flow and wealth.” — Robert Kiyosaki

I would love to hear your thoughts or experiences, as I am always in learning mode.

About the Author

Hi there! I‘m Tomas Janik, a real estate investor, developer, hospitality, and proptech enthusiast.

I love learning about and exploring new business ideas.

If you’re thirsty for valuable insights on real estate investing, proptech, and hospitality trends, then buckle up and hit that follow button! Trust me, you won’t regret it.

I am the founder of RitzandHammock.com, an early startup focusing on converting vacant commercial spaces into cash-flowing assets.

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Happy reading, my friends!