Except for some special circumstances in certain locations, real estate historically has gone up in value over time. Sometimes very quickly, sometimes slow but steady, and at times like a roller-coaster ride. A look at the past 100 years shows that if you held onto real estate for at least 10 years, you probably made a good investment that yielded you a reasonable return. That's certainly not the whole picture, and there are many factors that impact your return on investment, making investment decisions difficult at best.
Although there are many ways to approach investing in real estate, here are a few examples of real estate investments that can yield profits over a short term and/or long term holding period.
1. Flipping -- buy low, fix up and sell at the new market value. Although it is harder these days to find properties that are good candidates for flipping, there are always opportunities to find homes that are in good neighborhoods that are in need of repairs, are outdated, have functional obsolescence issues, and are just not appealing to the average home buyer. Sometimes you have to wait for the price to be reduced several times before the property gets down to the price range where the numbers begin to work. Foreclosures and estate sales are some of the best candidates because the price will continue be reduced on a regular schedule until someone buys.
A flip done well can be one of the quickest ways to make money investing in real estate. You need to fully analyze the costs to rehab the property and make correct predictions on the time it takes to get it to market and the price at which it will eventually sell. Hidden costs and/or unforeseen major repairs or delays can very quickly destroy the profitability.
Here are a few good resources to learn about how to make money flipping houses:
2. Buy and hold. Whether it is single family, multi-family or commercial property, if you buy it at a good price and/or terms initially, your rental income may be able to cover your costs and even provide you with a positive cash flow from the very beginning. If you consider all of the factors that determine your profitability, you may see reasonable gains fairly quickly. Some of these factors include the tax benefits, mortgage pay down, and property appreciation. Managing the properties yourself will provide you with the most return, but you have to be prepared to be a landlord and all the headaches that come with it. Many real estate investors have done very well with buying rental properties, finding good long-term tenants, and creating passive income for themselves to supplement their wages and/or create a comfortable retirement income in the future. Over time, multiple properties can be leveraged to purchase more properties, and significant personal wealth can be built for you and your family.
3. Higher and Better Use. When a property is not being used to it's full potential, or at its highest and best use, there may be an opportunity to make a great investment. Sophisticated real estate investors seek properties where they can change the use from single family to multi-family where perhaps a condo development can be built, or from residential to commercial for business use. A change in the zoning of a property can dramatically increase its value. An example might be a single family home with a large lot on a busy street surrounded by other businesses/commercial properties. Especially if the street has seen a steady increase of traffic, or there is planned commercial expansion in the area. This kind of information can be obtained by doing some research on the area, talking with the planning commission or zoning commission, and reading the City Comprehensive Plan.
There are many ways to invest in real estate, and they all require lots of research, knowledge, and hard work to produce successful results. Here is an interesting and well-researched post about investing in real estate. http://observationsandnotes.blogspot.com/2011/06/us-housing-prices-since-1900.html
Whether you are a new investor, or have been building your real estate investment business for many years, contact us to help you find your next property acquisition.