In this first step, we’ll look at the 5 best real estate investments. 

Fix and Flip

For years, the fix and flip model has been a staple in the real estate investment world. This concept entails owning rental houses or other properties in need of repairs, renovating them, and then reselling them for a profit.

One of the most significant advantages is that you don’t need to manage tenants or make long-term obligations on a property.

Fix and flip is one of the easiest models if you want to make money from renting property. You can fund your fix and flip projects without using your own money by using investor loans or hard money financing methods.

Best for: New and experienced investors with or without their own capital.

Term Rental

This is the most common buy-and-hold real estate investment strategy. A term rental is a single-family home or condo that's rented out on an annual lease basis. Term rentals are properties that are rented for long periods (typically 6 months or more). Keep in mind that term rental investments often require a large amount of capital upfront, which may not be feasible for beginners.

Best for: Experienced investors with capital who are looking for a passive rental income and can take care of the day-to-day operations.

Small Balance Commercial

These commercial real estate properties are usually leased to tenants and cost between $250,000 and $5 million to purchase. They can range in size from two – 50 units and include office buildings, retail establishments, and industrial operations. Small balance commercial provides monthly cash flow and the possibility for tax advantages such as depreciation and interest rates deductions.

Best for: Investors who are looking to diversify their portfolio and enjoy different real estate investment opportunities.

Build to Suit

Build to suit is an agreement between the tenant and the landowner whereby the real estate property is built as per the tenant’s specifications. You’ll need to design the property to meet the tenant’s expectations and once the development is completed, the tenant becomes the property manager. 

Best for: Experienced investors who have the capital to build custom-designed properties.

Ground Up Construction

One of the most profitable ways to invest in real estate is through ground up construction. It costs money to construct a building from scratch (more than fixing up an existing building). However, if you have the right capital and expertise, it can generate incredible returns and thousands of dollars.

Best for: Experienced investors who know have a thorough understanding of construction and zoning regulations.

2. Calculate Your Returns

The return on investment (ROI) is the cash flow from your rental property minus the operating expenses divided by your original investment. For example, if you have a cash flow of $200 per month, your operating expenses are $100, and you spent $20,000 buying and repairing the property, your ROI would be:

ROI = (cash flow - expenses)/original investment
ROI = ($200 - $100) / $20,000 = 0.06%

The higher the ROI is above zero, the better you did in making the best real estate investments. You can also express this as an annual percentage rate (APR). In this case, it would be approximately 6%.

There are 5 metrics to calculate ROI:

5. Analyze Profits and Losses

Like any other investment, it's important to review the profits and losses that you’ve made to check if you are being profitable or not.

Let's say you buy a house for $100,000. You put $10,000 down and take out a loan for the remaining $90,000. You then spend another $20,000 on repairs before selling it for $130,000. How much did you earn?

Add your costs to find:

• The original purchase price ($100,000)
• Repair costs ($20,000)
• Closing expenses (2% of sale price = $2,600)
• Interest on the loan ($90,000 X 5% = $4,500)
• A loan origination charge of $900 (1 percent of the loan amount)

That gives us a total cost of about $128K. Now subtract that from your sale price ($130K). You end up with about $2K in profit from the sale.

If you’re ready for the real estate market, we hope that our guide has served as a valuable introduction to how to start investing in real estate. Finding the best way to invest in real estate shouldn't be difficult, but rather a rewarding experience, as long as you have the right real estate partner on your side.