Buying and owning real estate as an investment strategy can be both profitable and rewarding. Unlike stock, bond, and cryptocurrency investors, real estate investors can take advantage by paying a portion of the total cost of ownership up front and paying off the rest plus interest over time.
Mortgages generally require a 20% to 30% down payment, and although some developers, offer a 12 year repayment plan, this generally encourages investors to buy more homes. Here are some tips to help you make your real estate investment profitable.
Your investment must meet two economic parameters to produce a profit.
- The value of the property must increase.
- Ownership and maintenance costs
The cost of maintaining the property must be less than the cost of increasing its value.
With so many types of investment property to choose from, savvy investors decide on an investment plan based on how quickly they want to make a profit. “Quick turn” and “long term” are the two options offered.
Quick turn investing is buying a property with the intention of selling it quickly, while long-term investing is buying a property with the intention of renting it or renting it for a long period of time, receiving both the rent and the increasing value of the property over time.
Investing with a quick return
This requires quick thinking and a thorough understanding of local real estate values, trends, and demand for different types of properties. There are two main strategies: wholesale and retail.
When fast wholesale investors find a good real estate deal, they sign a contract, sometimes without paying any money, then finding a buyer willing to pay more for the property. The wholesale investor then assigns the contract with the original seller to the new buyer, but at a higher price. Profit is the difference between the two prices.
Fast-moving Retail investors find an undervalued property in the market, improve it, and then sell it to a landlord or anyone else who wants to use it. Most people refer to that as a “launch”. When the investment is sold, the investor makes a substantial profit.
Techniques for long-term investing
Long-term investors typically choose either direct or indirect ownership.
Ownership through direct ownership
The owner and the tenant have a direct relationship through this technique. The owner is in charge of collecting rent, resolving tenant disputes, and overseeing all property maintenance.
This has the advantage of removing middlemen such as property managers. However, this places the entire burden of property management on the owner, who may not have the necessary skills.
Ownership by Indirect Means
Using this technique, an investor decides whether to hire a property manager or to join an investor group that includes a team of property managers. Joining a Real Estate Investment Group (RIG) or a Real Estate Investment Trust (REIT) is another option (REIT).
These are groups of investors who wish to invest in several properties and have them managed by a centralized team of professionals. These organizations are big players, and there is a clear distinction between a RIG and a REIT.
A real estate investment group (RIG) operates on a small scale, with investors investing in a company that owns and manages a property such as a condominium, or commercial building. The company is responsible for all aspects of ownership and management of the property.
A real estate investment trust (REIT) is similar except it is larger, deals with larger properties such as shopping malls, and is listed on national stock exchanges.
RIG investors invest in local and regional properties, enjoy seeing their money in action, and commit to RIG for the long term. Investors who are attracted to large real estate projects in various fields and prefer their investments to be more liquid are joining REITs.
Your goals will determine the techniques you use. Real estate investments can be made in a variety of ways, be it for quick or long-term profit.
The Bottom Line
If you are contemplating whether to venture in real estate investing, it is crucial to gather enough knowledge to help you evaluate both options carefully.
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