If you are thinking about a strategy to make money in real estate, skip residential properties and focus on commercial real estate. This does not necessarily mean that you need to focus on commercial buildings, start with a small residential multi unit building. Buildings with five units or more are considered commercial.
Where the money happens is here; residential properties are not appraised in the same way by lenders as commercial real estate. This makes all the difference for someone looking to invest in commercial real estate.
Small residential rental properties are appraised by comparing the building to recently sold similar buildings within a mile radius. Therefore, to increase the appraisal value and recoup your down payment you have to either hold the property long enough for the value to be driven up by the market, or you need to improve the property itself. Neither of these options are very cost effective for making money quickly.
A commercial building is appraised by comparing the income and expenses to other comparable commercial properties in the area. So essentially, the lender subtracts the expenses from the rent roll and multiplies that by the capitalization rate for the vicinity of the property. The challenge is to look for properties with artificially low rent rolls. This can be found in a landlord who has owned a property for a long time or in buildings where the owner resides within and is looking to sell.
Therefore, in order to increase the value of the property and recoup your deposit, you can increase the rent roll and or decrease expenses. Not a costly endeavor in relation to the residential option, and if managed correctly, will not take an exorbitant amount of time.
You, as the investor, can recoup your deposit money in less than a year, giving you the funds to purchase a new property and repeat the strategy. With rates as they are now, still low despite the rise of the last couple months, this can make you, the investor, quite a bit of money in a few short years.