Most people understand that it’s possible to make money with smart property investments, but they may not know that there are many different ways to make money—and you can choose to optimize for any number of them. Different real estate investors rely on different approaches; for some, it’s better to optimize for a stable, consistent ongoing return, while others prefer more speculative, long-term plays.
No matter what your goals are or how much experience you have, there will be an approach that works for you, whether it’s Florida property or any other state.
Broad Approaches to Property Investing
Let’s start by identifying the three main ways you can make money through property investing.
1. Cash flow. One of the most straightforward approaches is to optimize for cash flow, though it isn’t a strict necessity. In this approach, you’ll purchase a property and attract tenants to occupy that property. You’ll collect income in the form of rent (and sometimes, peripheral services like coin-operated laundry and vending machines), and hopefully, collect more in revenue than you pay in ongoing expenses. Assuming you have a good property in a good area, and consistent occupancy, you should be able to make a profit every month. This is advantageous because it gives you money on an ongoing basis, and because it’s stable and predictable.
2. Flipping. Another approach is to “flip” properties on a short-term basis. The general approach here is to purchase an inexpensive property (usually one that needs to be upgraded or improved), spend time polishing it, and then immediately sell it for a profit. There are some advantages to this approach; notably, it puts you in direct control of the situation, and in some cases, you can make a massive profit. However, a lot of factors need to go your way to make a profit while flipping houses, and if you aren’t careful, you could easily end up losing money.
3. Long-term growth. You could also optimize for long-term growth, choosing properties in neighborhoods or with features that are likely to heavily pay off over time. For example, you might purchase an inexpensive property in a neighborhood that’s still undergoing development; in 10 years, the value of the property could skyrocket. This approach works well for long-term investors, but it lacks the short-term payoff of other strategies. It is important to research what will and will not be a good rental market.
Obviously, you can hybridize these approaches; for example, you can choose a property as a long-term growth play, but still collect monthly rental income from tenants who occupy the building in the meantime. Many property investors try to use multiple strategies at once as a way to diversify their holdings and increase the likelihood of consistent positive returns.
Types of Properties to Consider
You can also adjust your approach with different types of properties to add to your portfolio:
4. Single-family homes. As the name implies, single-family homes are meant to house a single family. They tend to be simpler than other types of properties, and therefore make for good first-time investments. However, vacancies can be problematic, since you won’t have multiple active tenants to balance out your generated revenue. Still, you can balance this by holding many single-family homes at once, or by holding single-family homes in addition to other types of properties.
5. Multi-family homes. Depending on where you’re investing, you may also be able to purchase multi-family homes. These are houses designed to house multiple independent tenants at once, sometimes including the owner. For example, you may own a duplex with twin layouts, living in one and renting out the other. You may also choose a property where a different family lives on each floor. These tend to be slightly more complex to manage, but also provide more income stability.
6. Apartment complexes. The next step up is an apartment building, which is a single property that offers several units (sometimes dozens). Again, you’ll have more responsibilities to manage, and the initial purchase price can be high, but you’ll have much more revenue overall and more protection from vacancy-related income disruptions. They’re a frequent target for experienced investors with ample capital.
7. Commercial properties. You may also choose to invest in commercial properties, which are intended to be rented or purchased by businesses. These require an understanding of business fundamentals in addition to property fundamentals, but can be lucrative investments if you make the right plays.
No matter what, if you want to be successful in property investing, you’re going to need experience, guidance, or both. Few people are able to make intelligent, profitable plays immediately; instead, they rely on learning from their own mistakes and the mentorship of other, more experienced investors.
If you decide to start property investing, try not to get hung up on your own mistakes.