What is the best way to maximize your real estate profit and reach your investment goals?
Real estate is a solid investment that offers both short-term and long-term gains. People have been investing in real estate since land and homes were first bought and sold. If you have interest in becoming a real estate investor, there are several things to consider as you move forward. The main point is to determine why you want to purchase the propertyIs it for long-term gain? Is it for short term investment? It may be for both. By clearly thinking your strategy through on before you invest, you will likely maximize your efforts as you proceed. Before you purchase a property, you will have to determine if it is best to flip the property – make improvements and sell it fast – or rent it out. Markets do fluctuate, and even people who are not involved in real estate investing know the terms “buyer’s market” and “seller’s market.” Which decision you make depends on what is happening in the market, how much the property costs, and how your choices fit your overall investment strategy.
How to Know When to Flip a Property
Flipping a house can provide huge profits if you do it right. It has become popular and common over the last several years, and there even a number of television shows dedicated to showing people how it is done. Key factors in making the decision to flip include the initial purchase price, the location and condition of the property, and the prices of similar home sin the area. This last point also includes whether the properties have sold and how quickly they sold. Remember, a price is only truly valid when the property has a buyer willing to pay that price!
Generally speaking, if you plan to purchase a more expensive home, the best idea is to turn it around quickly in order to limit your expenses and gain from the current market. Expensive homes come with big mortgage and property tax payments, which usually mean that renting for the cash flow is out of the question. It can also be difficult to find renters for higher priced homes, and if they miss a rent payment for one or several months, your profits will quickly disappear and you may even start to have a significant loss.
If you find a great property that requires mostly cosmetic changes, you should be able to flip it easily for a meaningful profit. A property with major structural problems can be a “money pit,” especially if the price was too high to begin with. Before you commit to any major changes in the property, assess not only your own cash resources (this is very important!), but also your work force resources. Do you have relationships with contractors, landscapers, and other skilled labor professionals? Will those people be reliable in terms of time and price? These are critical questions to answer before you begin.
How to Know When to Rent a Property
Renting your investment property can provide you with monthly positive cash flow while you build equity through your payments and the appreciation of the property price. Renting also allows you to take advantage of tax breaks for any improvements you make to the property as a tax deduction. Again, key factors are the price of the home, if the market has growth potential, and the condition of the property.
A lower-priced home translates to a lower monthly payment, property taxes and insurance. Remember, you don’t need to make a big monthly profit. In order to succeed over the long run, the idea here is to own more properties and make your profits over time. When you rent a property out, you are building equity using your tenant’s money. Add up the costs related to the property, including a small amount for repairs and any utilities you plan to pay for. This is a safer way to invest in real estate and can net you very high profits. There will always be good tenants to rent good properties!
Another way to determine if you should flip or rent is if the market is growing. Does the area have a lot of new construction? Are there new industries moving in? Is the location near an urban area, with plans for an existing public transportation system to the city? Properties located in these “growth” areas almost always net the largest gains over time. This is especially true in areas where there are new people moving in. They often are moving from areas where they have sold their homes for larger process, and are looking to spend that money on new properties, thus driving up existing prices.
In a growth market, you can make money flipping a house, but you may be able to make considerably more money over a long period of time if you rent it out, build equity, and sell it for an even higher price at the optimum time. Even if you buy yourself a vacation home, you can make money down the road if you hold on to it, and you can rent it out as a vacation home or to tourists when you do not plan to live there.
It’s Not Just About the Bottom Line
When deciding whether to flip or rent out a property, assess the market, do the math, and then consider your own interests and abilities. The perfect flip is not so perfect for those who have no construction or renovation experience, and being a landlord may not be a role you wish to take on. In the end, it’s about what’s best for your pocketbook, whats best for your investment strategy and what’s best for you.