“Fix-and-Flip”… Not The Only Way To Make Money In Real Estate
The majority of individuals realize that any investment can be deemed as perilous since the outcome is often unforeseeable. This is especially true for the real estate industry which is among the most popular investment types in the United States. Investing in real estate often requires a high initial down payment, a long period of commitment and other potential risks. However, just like any other investment, performing extensive research and examining all of the available options is vital.
Investing in properties may not be for everyone, but the real estate industry has produced the most millionaires in the United States for the past several years. Furthermore, most of the successful real estate gurus did not limit their investing strategies to buying and flipping homes, but rather employing other astute investing methods.
The Buying and Flipping of Properties is a very grueling way to make money in real estate. It also holds a tremendous amount of risk mostly attributed to unforeseen work that was not factored in when buying the property.
Below are three other untraditional ways in which an investor can invest in real estate.
Purchase Rental Property
Traditionally, investors would purchase an entire rental property and rent it out to tenants while collecting monthly rental checks as long as the property is occupied. This is especially viable if the home purchased is in a travel destination such as the real estate in Cabo Mexico or Hawaii. Investing in resort destinations has proven to not only be a solid investment but provides tax-free justification for vacations. Depending on if you are looking at short term rentals or having a full-time tenant, you could use your own investment property for your family vacations. Other similar special types of real estate investments include historic homes and beachfront condos.
Traditional Rental Options
Becoming a landlord is basically taking out a mortgage for the price of the rental property and rent it out for a higher price than the loan payment. This traditional strategy allows the investor to essentially generate a profit from the tenants’ payments, while eventually owning the property in the long run. Many real estate investors look for foreclosures or HUD properties in an attempt to get the best deal on the house.
Each payment received from these tenants every month is a contribution to the total amount of the property’s value, ultimately applying a portion of each payment to the principle. This is an extremely powerful investing strategy since it allows the investor or landlord to collect passive income checks while also being named as the property’s owner.
Although this investor faces the risk of the inability to acquire a tenant after they agree to finance the property, keeping the property in great condition while keeping the expenses low is an excellent way to entice potential tenants. Most landlord style real estate investors look closely at the vacancy rate. You generally shoot for a 90% vacancy as a tenant turnover is the death of rental investing. Most investors use tools such as an APOD to estimate short and long term earnings. Lastly, becoming a landlord may seem an intimidating task since it is primarily reputation-based. For many, utilizing a local property management company is well worth the money. However, being readily available for the tenants and employing a local contractor to assist in repairs is vital to the level of success when it comes to being a reputable landlord.
Investing in Commercial Property
This investment type is an intriguing option for those who desire to invest in real property beyond residential properties. Commercial properties include office buildings, malls, hotels, retail stores, medical centers, garages, farm-land, warehouses, and industrial parks. The term “commercial” refers to any land or building intended to generate a profit. The best reason as to why this investment type is very intriguing is the earning potential.
Although it can be costlier than residential property investing, commercial properties generally have an annual return of 6% to 12%, which is much higher than the residential property returns of 1% to 4%. As an owner or co-owner of commercial property, an investor can rent it out to businesses that need space for their business. The income that is generated from these spaces is often much higher than residential. Furthermore, a commercial property’s leasing contract is generally much longer than residential contracts. Although this is not one of the most common types of property investing, it can be extremely profitable if a business-space is rented out in a popular area.
Invest in REITs
REITs are basically companies that own or finance properties in order to produce profits. With this type of investment, the investor does not have to buy a home or sell a home, but rather shares in commercial property portfolios. The investor would then receive income payments from a diversified set of properties including healthcare-facilities, infrastructures, office buildings, hotels, and warehouses. Additionally, these REIT companies would lease space and collect rent on various properties and subsequently distribute that income to its shareholders in the form of dividends. There are generally two types of REITs, equity and mortgage. Equity REITs own and operate income-producing properties such as commercial properties. Mortgage REITs provide mortgages on real property. There are many advantages of investing in REITs such as liquidity, diversification, transparency and offering dividends as stable cash-flow.
Better Than Flipping Houses
There are many ways to make money in real estate. Most of which don’t require the risk and physical labor like flipping homes do. This is not to say you shouldn’t have a good contractor on your team to ensure that repairs are done properly and in a timely manner. But the act of constantly remodeling a home is good for the die-hard contractor types and should be avoided by most real estate investors.
Before any investment, it is vital that thorough research is performed while evaluating the risk factor associated with each investment. Consulting with a respected local Realtor and financial planner can also assist an investor in analyzing their financial goals and objectives while fabricating a well-thought-out plan. Do not underestimate the critical role of the Realtor in any real estate investment. In many instances, they play a huge role in your long term success.