Method 1: Purchasing Properties and Reselling Them for Profit (“Flipping”) This is perhaps the best known real estate investing tactic. In this scenario, you and perhaps a partner or two will sell homes at significantly higher prices than you password for them. Often, flippers use their networks and knowledge of local resources to find homes sold at major discounts. These homes may be sold as foreclosure or short sales, and they may require major renovations. The savvy flipper can find good deals, use his resources to assess renovation and repair costs, and turnaround his investment relatively quickly. The upside to these deals is you can make tens of thousands of dollars in one deal. The downside is you need to keep hustling week-after-week, and take a big risk with each home. Plus, if you don’t fully understand repair costs and all the fees that may be associated with real estate transactions, you may find you lose money even selling the house at a higher price than you paid for it.
Method 2: Purchasing a Home or Apartment to Generate Rental Income
Purchasing properties to rent them out is how I prefer to invest in real estate. No doubt about it, doing so requires a long-term commitment and perhaps a willingness to tack on “landlord” to your credentials. However, investing in rental properties offers something that flipping can’t match: Passive income. To rent out a property, you need to scout out home sales that are compatible with your expectations of long-term ownership. Some investors focus on low-income communities and volume, while others may place their efforts into high-income neighborhoods. Like home flippers, your challenge is to ensure that the cost of the home, closing costs, and upgrade costs are low enough to make the investment worthwhile. Over the long-term, you’ll need to considering maintenance, mortgage and tax expenses along with managing the tenants of your property. You can hire management companies to deal directly with tenants, but that will reduce your earnings. Finally, as a long-term investor, you’ll want to find the highest quality tenants you can at the price you’re offering. Plus, you’ll need to fill vacancies and absorb the cost of periodic vacancies.
Method 3: Invest in a Real Estate Fund
If the idea of personally dealing with contractors, title agents, real estate agents, and being responsible for a mortgage give you the chills, you can always invest in a real estate fund. What’s great about real estate funds (some of which are traded in open markets) is they offer a chance to invest in real estate at low prices. At Lifestyles Unlimited, we often hear from people interested in, for instance, San Antonio investing, but who prefer not to manage the nitty-gritty details of investment themselves. That said, many people prefer to have control over their real estate investments. Real estate is one of the few ways of investing where you can choose not to rely on the whims of others’ decisions for your success or failure.
Other Strategies: Owner Occupied, Lease Purchases
We all need a place to live, and income to afford it. So why not combine the two? Many investors, especially young investors, will take up residence in a duplex or small apartment complex. They’ll then rent out the other rooms in the unit to tenants. Lease purchases offer another way for individuals to dive into real estate investing. A lease purchase is a lease on a home that may grant you the right to buy the home later on. Some investors make fortunes entering lease agreements and finding tenants or buyers for the properties.
Real estate investing is what you make of it. Strategies can carry high risk and quick rewards, or lower risks with longer-term benefits. Find an investment strategy that suits you and always seek out the wisdom of fellow real estate investors and real estate professionals. The right knowledge can make all the difference between success and losses.
Heather is a staff writer for Lifestyles Unlimited. She enjoys analyzing real estate investment trends, laws, and practices while debunking myths. As the owner of multiple rental properties and “flipped” houses, Heather believes that Real Estate Investors help put money back into the North American economy.