Real Estate Buying & Investing
If you decide an investment property is right for you, our team can help you find the right fit for your investment portfolio. Whether you intend to flip, manage the property yourself or get a property management company to look after it, knowing what is expected of you before and after the purchase is crucial. Getting bogged down in unexpected responsibility can make a passive investment turn into a demanding full-time job.
It can feel like a juggling act, making sure you succeed with your investment property. From getting a good mortgage rate from a lender, to being savvy about the time and money you invest into the property before you list it, one major misstep can leave your return in the red. We can help you sift through the many variables that go into an investment property purchase including proximity to you, average rents for the area, job market, amenities, property taxes and future developments. All of these will play a roll into how much you profit from your investment.
When you end up finding your ideal investment property, keep your expectations realistic. Investing is lucrative if you don’t bite off more than you can chew. Make sure your own finances are healthy enough that you can wait for the property to generate cash. When you do, an investment property can be a real reward.
Identify your Goals
Once your own home is taken care of, the idea of owning another home as an investment might interest you. With a little knowledge on your side, you’ll be able to set realistic goals for investing in further properties. It is important to identify your goals and determine things like if you want to rent out the house until it’s fully paid off and cash in the annual income from rents, or if you are just looking a short-term profit. Once you do, you’ll want to put financing in place that matches your goals.
Your buyer’s agent can help you make a realistic roadmap for success, offering you key insight into the process. They’ll know the market, pitfalls to avoid and ways to decrease your risk. Each avenue for investing comes with different strategies, when it comes to mortgages, taxes and your role in the investment, so clearly knowing what your goal is before you begin is important.
Owning rental properties can be a great opportunity for individuals with do-it-yourself and renovation skills and have the patience and time to manage tenants. However, this strategy does require substantial capital to finance up-front maintenance costs and to cover vacant months.
The upside of this is it can provide regular income and properties can appreciate. This strategy also maximizes capital through leverage and expenses may be tax-deductible. On the downside, it can be tedious managing tenants who can also potentially damage the property. That is, if your place is rented. You may experience reduced income from potential vacancies.
House flipping is for people with significant experience in real estate valuation, marketing, and renovation. House flipping requires capital and the ability to do, or oversee, repairs as needed. Real estate flippers often look to profitably sell the undervalued properties they buy in less than six months. If this is what you’re interested in, you’ll want to be upfront with your buyer’s agent about your intentions to flip the property you are looking to buy so they can narrow the search to suitable properties.
Pure property flippers often don’t invest in improving properties. Therefore, the investment must already have the intrinsic value needed to turn a profit without any alterations, or they’ll eliminate the property from contention. Flippers who are unable to swiftly unload a property may find themselves in trouble because they typically don’t keep enough uncommitted cash on hand to pay the mortgage on a property over the long term. There is another kind of flipper who makes money by buying reasonably priced properties and adding value by renovating them. This can be a longer-term investment, where investors can only afford to take on one or two properties at a time.
If you are considering house flipping as an option, it does have the benefits of tying up capital for a shorter time and quick returns. On the flip side, house flipping often requires a deeper market knowledge and the ability to take a risk where a hot market might cool unexpectedly.
Real Estate Investment Groups
Real estate investment groups (REIGs) are ideal for people who want to own rental real estate without the hassles of running it. Investing in REIGs requires a capital cushion and access to financing. REIGs are like small mutual funds that invest in rental properties. In a typical real estate investment group, a company buys or builds a set of apartment blocks or condos, then allows investors to purchase them through the company, thereby joining the group.
A single investor can own one or multiple units of self-contained living space, but the company operating the investment group collectively manages all the units, handling maintenance, advertising vacancies, and interviewing tenants. In exchange for conducting these management tasks, the company takes a percentage of the monthly rent.
A standard real estate investment group lease is in the investor’s name, and all the units pool a portion of the rent to guard against occasional vacancies. Because of this, you’ll receive some income even if your unit is empty. If the vacancy rate for the pooled units doesn’t spike too high, there should be enough to cover costs.
This investment strategy allows for a more hands-off than owning and managing rentals yourself and you’re more likely to see a stable income and appreciation. It is important to note that there still are vacancy risks and fees that are similar to mutual funds.
Real Estate Investment Trusts
A real estate investment trust (REIT) is best for investors who want portfolio exposure to real estate without a traditional real estate transaction. A REIT is created when a corporation, or trust uses investors’ money to purchase and operate income properties. REITs are bought and sold on the major exchanges, like any other stock.
A corporation must pay out ninty percent of its taxable profits in the form of dividends to maintain its REIT status. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed on its profits and then have to decide whether or not to distribute its after-tax profits as dividends.
Like regular dividend-paying stocks, REITs are a solid investment for stock market investors who desire regular income. In comparison to the other types of real estate investment, REITs afford investors entry into non-residential investments, such as malls or office buildings, that are generally not feasible for individual investors to purchase directly. More important, REITs are highly liquid because they are exchange-traded. In other words, you won’t need an agent and a title transfer to help you cash out your investment.
If this is something you would like to consider, you should know that your core holdings tend to be long-term, cash-producing leases. Also, leverage associated with traditional rental real estate does not apply it REITs.
Online Real Estate Platforms
Real estate investing platforms are for those that want to join others in investing in a bigger commercial or residential deal. The investment is done via online real estate platforms, also known as real estate crowdfunding. It still requires investing capital, although less than what’s required to purchase properties outright.
Online platforms connect investors who are looking to finance projects with real estate developers. In some cases, you can diversify your investments with not much money. This mean you can invest in single projects or portfolio of projects and are open to geographic diversification in your portfolio. Beware though, this type of investment tends to be illiquid with lockup periods and comes with management fees.