There are many different ways to invest in real estate. If you are not careful it is easy to experiment with as many of these options as you can find. While there is nothing wrong with a little trial and error without a firm plan in place you will end up constantly chasing your tail. The best way to figure out what type of real estate investing is best for you are by putting your goals down on paper. What you will find is that your goals will lead you to the market, purchase price, structure and timeframe of the deals you should pursue. Your investing goals are specific to yourself and your personal preferences. Here are a couple of investing options based on your short and long term goals.
Short Term Returns:
Most real estate investors get started in the business seeking the quickest return on their investment as possible. They are sick of the low yields that savings accounts or CD’s offer. They want to be in and out of the property in as short a timeframe as possible. If this sounds like you there are two main real estate options.
- Flipping/Rehabs. They idea behind flipping matches the short term mindset to a “T”. In order to maximize the return on the property it is essential to get in and out as quickly as possible. The best rehabs often happen within a 90 day window. What makes these types of deals so appealing is the upward potential for profits. With the right property in the right market you can easy yield a 25% return on your investment. There are plenty of other factors that come into play but the possibility for these returns exists. While speed is important making the right improvements is critical. As a rehabber you are judged on the quality of your product. With most markets tilted towards buyers if the work is poor they will look elsewhere. As much as the real estate market has gained over the past two years you need to be able to pick the right stock at the right time. This is easier said than done. With real estate you can be in and out of the property in few months instead of waiting years for a stock to take off.
- Wholesale Deals. If you want to turn a property over even quicker than a rehab wholesale deals are for you. On wholesale deals you don’t have to wait for the initial deal to close, the work to be done and the property to sell. All you need to do is find a motivated seller and an investor to see value in your property. The basic concept of wholesaling is to find deals at a discount and instead of rehabbing them yourself you pass the deal off to a fellow investor. This may sound like giving up money but there are plenty of positives. For starters you don’t have to deal with any of the risk associated with the property. You can get in and out as soon as the current homeowner is ready to close. You also have the ability to close many more deals throughout the course of the year. Instead of waiting 90 days or so you can close multiple wholesale during that same period.
Long Term Returns:
Not every investor is looking to get in and out of their investments quickly. There are plenty of investors who look at the business as a way to accumulate long term wealth. The best way to do this in real estate is by developing your buy and hold rental property portfolio.
- Rental properties. Rental properties are one of the best ways to accumulate true long term wealth. A few high performing rental properties can completely transform your portfolio. The first thing they will do is provide you with monthly cash flow. Depending on a number of factors your excess cash flow can be hundreds of dollars a month. With this money you can pay down your loan balance and accelerate the time required to own the property outright. Actually you can use these funds any way you please. If you want to pay off other debt or use in other areas of your business you have that option as well. Another benefit of a rental property ownership is the tax breaks provided. You have the ability to write off mortgage interest payments, expenses, repairs and even the mileage driven to the property. The tax breaks alone can turn an average property into one that makes sense to own. The final benefit of rental properties is the possibility of long term appreciation. Buying a rental property on the speculation that it increases in value is never a good idea. That being said with the loan pay down and market appreciation it is not uncommon for the value to rise substantially over the years. In fifteen to twenty years you could very easily be sitting on a property valued at hundreds of thousands of dollars with a low loan balance and strong cash flow.
Your goals will often change the longer you are in the real estate business. Instead of chasing every deal that comes your way let your goals guide you. By doing this you will very rarely regret any purchase you make. The happier you are with your investments the more likely you are to continue making them.
