If you are buying property as an investment, the first priority is profit. You want to make as much money as possible, in the shortest amount of time.
With real estate, you have several options for ensuring positive returns on your investment.
You can buy, renovate, and sell; buy and rent; or buy, live and rent. Endless variations on these themes exist, and there are many more possibilities.
When you first start investing in real estate, you will probably want to start with one of these basic practices. To get the most out of your property investment, keep these things in mind.
Real Estate is NOT a Short-Term Investment
The only way to turn a quick profit on real estate is through a renovation model.
You buy a distressed home at below its market value, improve the property, and then sell it.
This model can give you some quick gains, but unless you plan to do most of the renovation work yourself, it can also be a very expensive way to turn a profit.
If you are planning on doing the rehab, you need to know what you are getting into. Rehabbing a home takes a lot of work, a big investment in time and materials, and may not go according to plan. If the renovation takes too long, you could see property prices dive, leaving you selling at a loss.
The buy, renovate, and resell business model works best for those with a lot of experience in construction and the real estate market. Plus, it only generates a one-time return. Looking at real estate as a long-term investment gives you more flexibility in how you deal with a property.
Becoming a Landlord
Renting out a property is the way to generate consistent income.
Mixed-use and multi-family dwellings are often the best way to get the most income with immediate returns. It is easiest to line up financing for owner-occupied buildings, so finding properties in which you can live and rent space makes a lot of sense.
They also offer benefits during renovation periods.
If you need to do repairs to one unit, you can still draw income from one of the other units.
As a landlord, you can get many of the same benefits as someone who renovates and resells, without the risk.
Because you plan to keep the property for several years, you do not need to rush renovations or worry about temporary price fluctuations.
Building Wealth with Property Appreciation
One of the most common ways to earn a good return on real estate is by gaining appreciation on the property.
A building you buy now might be worth considerably more in a few decades.
On top of that, you can collect rent every month, giving you income as you wait for the property value to go up.
Like with any investment, you should set some hard and fast targets before you buy.
When buying stocks, you can set up sell thresholds, and you should do the same when buying a property. Waiting too long can leave you struggling to sell after the market corrects.
Instead, commit to specific targets and act as soon as you reach them.
Expanding Your Property Portfolio
A few small units can give you a regular income, but to make real estate your primary source of income, you need a fair number of units.
That is where small apartment or office buildings come into the picture.
You'll want something that has less than 50 units and more than five.
More units mean more income per property, and if you can buy the property outright or pay down the mortgage quickly, most of that money goes right into your pocket.
The reason why most new real estate investors don't dive into an apartment building is due to the more complex financing requirements. Commercial lending on that scale has more limitations.
Buy Low, Sell High
Ultimately, making money on real estate comes down to the simple concept of buy low and sell high.
You want to find undervalued properties or areas you think are likely to experience a renaissance.
For example, in Maryland, the addition of the Rt. 200 toll road made property further from Washington D.C. more valuable. With quicker access to the Metro and other major highways, homes further from the city could commute in a reasonable time.
Find areas with similar construction plans in the works or new businesses coming to the area.
If you get in before the property values start to rise, you can make a real killing.
Diversify and Wait
When you are in real estate for the long haul, you have the potential to earn a lot.
Each property in your portfolio represents a significant capital asset. By renting units, you get someone else to pay the mortgage, leaving you with a valuable investment and direct income.
Don't invest in property expecting to see rapid appreciation, and don't spend all of your time on renovations.
To get the most money out real estate with the least stress, invest in properties that will give you positive cash flow from day one. If you do, you can rapidly expand your property portfolio and gain capital assets.
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