Are you considering investing in real estate but aren’t sure which type of investor you should be? Knowing the different types of real estate investors can help you make an educated decision. In this blog post, you’ll learn about the different types of real estate investors, their strategies, the pros and cons of each type, and more. Read on to learn all about the types of real estate investors and how to choose the best one for your goals.
You could group these investor types in a variety of ways, but I’ve broken them out below into strategies (listed alphabetically):
- Buy, Rehab, Rent, Refi and Repeat (the BRRR or BRRRR strategy)
- Buy and Hold
- Fix and Flip
- House Hacking
- Real Estate Entrepreneurship
- Creative Financing
- Short-Term Rentals
- Tax Liens/Deeds
As you will see, some types of real estate investors might fall into more than one category. For example, a short-term rental investor might be classified as both a buy and hold real estate investor as well as a short-term rental investor.
Buy and Hold Real Estate Investors
Buy and hold real estate investor are typically buying properties and renting them out to tenants.
Typically a buy and hold real estate investor is looking to get returns from all 5 areas of the Return Quadrant™:
They benefit from properties values going up over time from inflation and market forces—what we call Appreciation.
And, if they buy properties with financing, they can also benefit from Debt Paydown.
Nomads™ are essentially Buy-and-Hold Real Estate Investors who acquire their properties by purchasing them as owner-occupants first. They move into the property and live there for the time required by the lender. After the required minimum by the lender (usually a year), they convert their owner-occupant property to a rental and repeat the process.
House Hackers are Buy-and-Hold Real Estate Investors who optimize the income they are earning from their own owner-occupant properties. They often achieve this by renting out part of the property they are living in.
For example, they may purchase a duplex, triplex, or four-plex and live in one of the units while renting out the other units. Or, they may buy a single family home and rent out the extra bedrooms or mother-in-law quarters.
Fix and Flip Real Estate Investors
Fix-and-Flip Real Estate Investors are looking for properties they can buy, usually at a discount, where they can fix up the property and resell the profit for a profit within a short period of time.
These investors are typically focused on short-term cash flow in the form of capital gains. They often use this as a primary means of earning money to live on. Sometimes, but not always, they also earn money in excess of their standard of living and using it to invest in some properties to keep longer term as rentals.
Buy, Rehab, Rent, Refi and Repeat (BRRRR)
The BRRR strategy has you buy a property significantly under value that usually needs work. Rehab the property. Rent out the property to a long-term tenant. Refinance the property trying to leave little or none of your own money in the deal.
And, if you like this process… throw on another R at the end for repeat to make it BRRRR.
Creative Real Estate Investors
I often like to refer to Creative Real Estate Investors as “entrepreneurs” rather than “investors”. I think it better describes the nature of their business. They are really in the business of marketing to find motivated sellers, structuring creative deals, and acquiring properties creatively. They often sell their properties creatively as well.
I would include real estate investors interested in creative financing strategies like lease-options, lease-purchases, subject-to, and owner financing in this group.
Real Estate Partnerships
Real estate partnerships split up the responsibilities of investing in real estate in such a way that it is shared by multiple individuals: deal finder/syndicator, loan/financing partner, down payment/money partner).
There are a few variations to the lease-option strategy.
The first variation is that for some real estate investors, lease-options are a business of real estate entrepreneurship: they are in the business of finding motivated sellers where they can acquire a property—usually creatively on a lease-option or buying the property subject to the existing mortgage or owner financing—and then they advertise the property for sale with creative seller financing terms to find a tenant-buyer who buys it from them on a rent-to-own, lease-option, installment land contract or owner financing.
They make some immediate income between the option fee and cash flow they collect but really it is about getting “income pops” when a tenant-buyer ultimately gets a new mortgage and actually closes on the property when they ultimately buy it from them.
The second variation is that some traditional buy and hold real estate investors, or Nomads™ or house hackers will combine their strategy with offering their properties to tenant-buyers. The exit is the same, or very similar, as variation 1, but the way they acquire the properties is not through finding motivated sellers and acquiring the properties creatively. This variation is often used when a real estate investor would otherwise have challenges making properties cash flow since offering properties on a lease-option is a solution to improve—and sometimes significantly improve—cash flow on properties.
Wholesalers are typically looking for amazing, investor-grade deals. Then, they negotiate the terms of purchase with a seller — often a motivated seller. Finally, they sell the rights in their contract to a second investor. The second investor is typically one of the investor types we’ve covered above.
Alternatively, sometimes the Wholesaler will close on the property and immediately resell it to the second investor instead of assigning their rights in the contract.
Bird dogs are a lite-version of wholesalers. Bird Dogs just do the preliminary work of identifying potential deals and then turning the lead on to other investor types who then pursue buying (or wholesaling) the property.
As you might imagine, Bird Dogs are typically paid a much smaller fee for their work than a Wholesaler who will negotiate the deal, control the deal with a contract or option, and then sell the deal or their rights to the deal.