The Top 4 Types of Investment Properties

Investment Strategy Pros and Cons

So you’re ready to invest in real estate but you don’t know which investment strategy is going to give you the result that aligns best with your goals. We get it. That’s why we’re here to help you make the best informed decision so your investment works with you and not against you.

Each investment strategy has its own Pros and Cons and we’re going to lay them all out for you.

BRRR – Buy, Renovate, Rent, Refinance

This type of investment is what we like to call the rinse and repeat method. For a successful BRRR to happen, you are typically buying a distressed or rundown property that needs rehabilitation.

First, you buy the home and renovate it to force the appreciation of the property to a much higher value.
Next, you rent out the property to start helping with paying down the mortgage.
Lastly, you refinance with the goal of extracting all your capital back out of the property so you can now invest it into another property.

Pros:

Infinite return on investment: little to no cash left in your property
Scalability: You can scale relatively quickly which increases both the number of investments in your portfolio, but also increases the overall value of your portfolio
Equity: Instant built equity after you refinance
Passive appreciation long term
Debt pay down along with monthly/annual cash flow tends to be higher

Cons:

The numbers rely heavily on a strict timeline; delays in completion can result in lead to large interest repayments
Initial capital investment is high
A bad appraisal that doesn’t align with your estimated after-repair-value can result in an inability to refinance, or cause difficulties in paying back lender
Difficulty in renting after renovation can affect budget
Requires extensive renovations to force appreciation and extract all capital

Buy and Hold

This is for investors that are looking for passive income over a longer period of time.

These properties tend to be turnkey and/or need minor cosmetic repairs.

This type of investment recoups its equity over a longer period, rather than immediately through forced appreciation.

Pros:

Little to no renovation required; typically considered a turn key investment
A long term hold results in passive income and increased property value
High return on investment
Tenants are doing the debt pay down including your mortgage and operating expenses

Cons:

Nominal cash flow, if any
Longer term hold in order to see equity growth
Rental vacancies can be costly

Flipping a Home

This type of investment involves purchasing a property listed below market value because of its distressed condition.

The property is restored/renovated to drastically increase the after-repair value.

The home is held only for the period it is undergoing renovations and then listed back on the market. When done correctly, this is an investment strategy where you see the quickest return on investment.

Pros:

Quick turn around on investment
Avoids ongoing difficulty of finding tenants and maintaining the property
Faster return on your money, focused on active income and not long term passive income
Capital is at risk for a minimal amount of time

Cons:

Fluctuations in the real estate market make it a higher risk investment
Could cost you a hefty tax bill
Cost of investment (renovation, carrying costs, closing costs etc), can significantly affect profits

Rent to Own

This type of investment is a legally documented transaction where a tenant pays monthly rent for an agreed upon amount of time with the option to purchase the property at any given time before the lease ends.

This allows a portion of the rental price to go towards having equity in the home without having to come up with a large down payment ahead of time.

Pros:

Monthly cash flow in the form of rent and money towards purchase price
Large lump sum when renter is ready to buy
Seller/landlord is not usually responsible for maintenance and repairs

Cons:

If given an option to purchase agreement, tenants can terminate a contract at any time
If property price is locked in to the agreement and the housing market increases, you are losing the passive appreciation value
Seller must still make the mortgage payments, even if tenant is in default of rent

I’m Here to Answer Your Questions

Whichever type of investment strategy sounds right for you, I’m always here to answer any questions you may have.

The Kate Broddick Team are experts in investment properties and would love the opportunity to show you some homes today!

The Top 4 Types of Investment Properties

Investment Strategy Pros and Cons

BRRR – Buy, Renovate, Rent, Refinance

Pros:

Cons:

Buy and Hold

Pros:

Cons:

Flipping a Home

Pros:

Cons:

Rent to Own

Pros:

Cons:

I’m Here to Answer Your Questions

Courtney Dorion

Real Estate Sales Representative