Beginner's Guide to Real Estate Investing

The Buy-and-Hold Rental Strategy

Buy a property, rent it out, collect monthly income, build equity over time. This is the most straightforward and most common starting point for new investors.

The numbers that matter:

• Cash flow: Monthly rent − all monthly expenses = monthly profit
• Cap rate: (Annual net operating income ÷ purchase price) × 100, target 5–8%
• Cash-on-cash return: Annual cash flow ÷ total cash invested × 100, target 8–12%

Example, $250,000 single-family rental in Pensacola:

• Rent: $1,800/month
• Mortgage (20% down, 7%): $1,330/month
• Taxes + insurance: $350/month
• Property management (10%): $180/month
• Maintenance/vacancy reserve: $150/month
• Monthly cash flow: -$210/month, not a good deal at this price/rent ratio

Adjust: find a property at $200,000 renting for $1,800 and the numbers work.

The Fix-and-Flip Strategy

Buy a distressed property below market value, renovate it, sell it for a profit. Fast returns, active involvement, higher risk.

The 70% rule: Maximum purchase price = (ARV × 70%) − estimated renovation costs

Example: ARV = $350,000, renovation = $60,000 → Max purchase price = $185,000

The real costs of flipping:

• Purchase price + renovation (always budget 10–20% over estimate)
• Holding costs: mortgage, taxes, insurance, utilities during renovation
• Closing costs on purchase AND sale: combined 6–10%
• Capital gains tax if held less than 1 year (ordinary income rate)

Realistic timeline: Purchase to close: 3–6 months total. Warning: Flipping is not passive income. It's a job. Treat it like one.