3 Strategies To Profit With Investment Property
Jul 3rd, 2007 by Lewis
Buy, Fix, Flip
The profit center in this scenario is really the quality and speed with which you are able to upgrade a property and sell. Even if you have the perfect renovation project you need to make sure that there is a solid return on investment (ROI) once you are finished.
One key to this method is to buy the worst property in the best neighbourhood and bring it up to standards that buyers in the area would expect. Trying to buy a cheap property or renovate a great place with cheap upgrades just won’t work. Know your market, know your area and know the value that you are adding to the property.
Hold and rent
This strategy really comes down to cash flow from rental income. Choosing to rent fits the old line, “you make your money when you buy, not when you sell.” If you can find a great property that has a positive cash flow (after all expenses) and monthly equity build-up then your long-term ROI will be great.
When calculating your net income from rent, be sure to include both immediate monthly and potential long-term expenses. Factoring in the payments, interest and taxes (PIT) is as important as the home insurance, condo fees, maintenance and management fees.
Speculation
One major decision when investing is whether you will become an investor or a real estate speculator. The investor buys for short-term profit (buy low, sell high), rental income (positive cash flow) or increasing value (renovators); the speculator buys real estate with long-term plans and future scenarios in mind. Speculation involves either buying in a depressed (down) market or buying before a boom.
Knowing when to jump into a down market is as exciting as knowing when to get out of a boom! When investing in this method, you need to complete a thorough analysis of why there is a market change and when the increased value will take place.
If you choose to go this route, ensure that you have the funds to support the property (including raw land, vacation property or options) and have a clear exit strategy in mind. This is the most difficult to support; however, it can be the most lucrative in the long-run.
Final Thoughts
Becoming a real estate investor can be an exciting step towards financial freedom. However you approach the market, be sure to have a clear entry and exit strategy in place. Also, ensure that your financial situation can support the methods you choose and minimize your risk by keeping your real estate educating current.
I am very interested in beginning the real estate business. I have read all the information you have posted and have a few questions. How does someone that is employed making only 24k a year start this business. If i wanted to invest $500,000 in properties for 25 years, assuming that i have some vacancies (say 6-10%), I feel very worried that i would not be able to support the investment and would run into serious trouble if the vacancy rate increased. An even more critical question is, say that your $500,000 apartment complex is not built yet with your same 24k income. Once built, i suspect you will have at least a month where outside landscaping, painting, etc are being put in and the rent and expenses still have to be paid…how would someone like me survive that? Thanks for the advise