Real estate has traditionally been considered as a long-term investment. The buy-and-hold model of rental property investing, in particular, has been promoted as one of the best ways to generate passive cash flow and build generational wealth. And, while these long-term real estate investments certainly are a proven path to wealth, they aren’t the right fit for every investor at every point in their investment journeys.
When you aren’t in a position to tie up your available capital for a long period, short-term real estate investing can allow you to capitalize on the profitability potential of real estate without the long-term commitment.
In this article, we’re exploring 10 short-term real estate investment strategies for investors to consider:
Fix-and-Flip
Wholesaling
Land Development
Short-Term Rentals
House-Hacking
REO Investing
Real Estate Mutual Funds and ETFs
REITs
Real Estate Crowdfunding
Real Estate Syndication
Fix-and-Flip
Fix-and-flips are a classic short-term real estate investment option. Investors purchase a distressed property, spend a few months renovating the property, then resell it for a profit.
While you can get in and out of a flip quickly (and potentially earn returns of over 15%), it’s important to consider the risks. First, a substantial amount of capital is required up front to fund the purchase and the construction. Secondly, changing market conditions could make the completed project difficult to sell.
Wholesaling
Wholesaling is like flipping but with the purchase contract instead of the actual property. This strategy required finding an under-valued property, getting the property under contract, then selling that contract to someone who is willing to buy the property at fair market value (or higher), and pocketing the difference. So wholesaling allows you to invest in real estate without buying property.
The potential downside to real estate wholesaling is that you could be stuck with a property you don’t want if you can’t find a buyer in time. This is why most wholesalers won’t sign a contract unless they already have a buyer lined up. This strategy is best reserved for well-connected investors who can find under-priced off-market deals and have relationships with hundreds of potential buyers.
Land Development
Land development involves purchasing raw land and preparing the lot for residential or commercial use, typically through surveying, conducting necessary environmental studies, and grading the land. This short-term investment strategy requires thorough market research, knowledge of zoning regulations, and an understanding of the process of preparing raw land for development.
Land development is a good fit for investors who have industry connections that can teach them the ins and outs of preparing land for construction.
Short-Term Rentals
The rise of online platforms like Airbnb and VRBO has opened opportunities for short-term rental investments (also known as vacation rentals). Real estate investors can purchase properties in tourist areas, furnish and stock the units, then rent them out on a short-term basis (by the night or week). This strategy requires careful consideration of the location, local short-term rental laws, day-to-day property management, and marketing.
The upside is the cash flow potential with higher nightly rates than long-term rentals can offer. The downsides are the higher maintenance due to higher turnover, and the potential for high vacancy losses and inconsistent bookings. Additionally, as more local governments are tightening restrictions on vacation rentals, it’s imperative that property owners stay current on changing regulations.
House Hacking
House hacking is a general term for generating income from one’s own home. This could mean:
Building an ADU (Accessory Dwelling Unit) on the property to rent out.
Converting a garage loft or basement into a rentable unit.
Living in one unit of a multi-family property while renting out the other unit(s).
Leasing storage space on your property.
House hacking is a growing entry point for those who want to get into real estate investing. It’s also popular among investors with limited capital.
As you already own the property, the financial risks are mitigated, so long as you can comfortably afford the mortgage payments. The main downside is the close quarters you share with your renters.
REO Investing
REO investing involves purchasing properties that have been foreclosed on by lenders and are now owned by banks or other financial institutions, then either reselling those assets for a profit (with or without renovating in the interim). REO properties (which stands for the accounting line item “Real Estate Owned”) are often available at discounted prices because most financial institutions wish to dispose of the assets as quickly as possible. This gives you a chance to acquire investment properties below market value.
Successful REO investing requires an understanding of the foreclosure process, thorough due diligence, industry connections, and the ability to negotiate with banks. In addition to the normal risks of buying properties to resell, REO investing comes with additional potential trouble from the previous owners.
Real Estate Mutual Funds and ETFs
For investors seeking a more diversified approach to real estate, investing in real estate mutual funds and exchange-traded funds (ETFs) can be an attractive option. These types of real estate investments pool money from multiple investors and invest in a portfolio of real estate assets, such as residential or commercial properties or real estate-related securities.
Because real estate mutual funds and ETFs are traded publicly on the stock market, they are comparatively liquid real estate investments. They are also professionally managed to provide broad market exposure with limited risk.
The downside is the lack of control over which specific projects are held in the funds. And, because risk is limited, returns can be limited as well.
REITs
Real estate investment trusts (REITs) are companies that own, operate, or finance income-generating real estate. By buying shares in a REIT, you can invest in a wide range of real estate assets without directly owning or managing properties.
The primary draw of REITs is the dividend yields, which you can reinvest to grow your portfolio faster, or cash out to fund your lifestyle. But investors also appreciate the ability to sell their shares easily. This is why REITs are widely considered to be one of the best short-term investments.
As with mutual funds and ETFs, the downside of REIT investing is the lack of control over which assets are included in your portfolio.
Real Estate Crowdfunding
Real estate crowdfunding is a flexible option for investing in real estate alongside other investors. With crowdfunding, your contributions are pooled with the contributions from other investors, providing access to unique deals that may have been outside your reach as an individual investor. And those deals can cover a wide range of project types, including single-family fix-and-flips, multi-family developments, or short-term rentals. In many cases, crowdfunding is offered on a deal-by-deal basis, which means that you get to choose the specific project(s) you wish to invest in.
Crowdfunding is also a means of investing in real estate online, making it easy and convenient to place investments and earn passive returns.
Potential downsides include a lack of control over the project and ownership of the debt rather than equity in the project.
Real Estate Syndication
Real estate syndication is very similar to crowdfunding. The key difference between syndication vs crowdfunding is the more stable ownership structure of syndication. Unlike crowdfunding, in which investors are typically not made members of the entity that owns the property, syndication investors are given an ownership share of the entity that owns the subject property, giving them an equity stake in the underlying real estate.
Because of the accessibility, professional management, and passive income potential, real estate syndication tops the list of short-term, high-yield investments.
Short-Term Real Estate Investing with Gatsby Investment
Gatsby is an LA-based real estate company that specializes in strategically choosing residential real estate investment projects with the highest return potential. From 2017 through 2022, Gatsby’s average annualized return for investors was an impressive 24.22%!
