Friday, November 6, 2015, AM | 2 Comments
Many investors do see a rise when it comes to investment properties, but not all properties rise quite enough to justify the long-term commitment by the investor.
Many people make the initial investment expecting the price of said investment to appreciate a lot given time. This, however, can be a risky business.
Thus, there’s a wisdom in real estate investing, just as there is with stock, with commodities, and with any other investment class: There are many variables to consider.
That said, where is it the savvy money should go?
Know your Market Well
If you pick up an investment property at market price, it’s likely the returns are not going to be overly robust. It will probably make a market return.
So, look for property that is underpriced. And the only way you will know which ones are is to have a good sense of the market.
The S&P/Case-Shiller National Home Price Index with respect to single-family dwellings in 2014 rose around 4.5 percent. Nevertheless, the price of luxury homes for 2015, in accordance to Sotheby’s Global Luxury Residential Real Estate Report, appreciated by eight percentage points.
And, it is considered by the experts that as the recovery continues, there could be added momentum in the rate of appreciation.
Unlock Returns with Turnkey Properties
A turnkey property is a redeveloped, fully vetted property that already has tenants and a property manager. It’s like investing in a take-and-bake pizza. The ingredients are there, so all you do is buy it.
However, as you’d expect, this is not as lucrative a deal in comparison to the potential that other tenant properties have.
Vacate Vacation Homes
Seasonally, a vacation home has the capacity to provide for decent returns. The problem lies in the vacancy and holding costs together with what is typically a premium price tag. Thus, rate of return is never going to be stellar.
REITs are Worth a Shot
A real estate investment trust or REIT is a company that develops real estate assets. REIT funds and publicly traded REITs provide for liquidity as well as low investment minimums.
And there’s high diversity available with REIT mutual funds. Nevertheless, performance is more keenly aligned with stock market returns and does not always correlate with property values.
If you don’t have much experience in this game of rental properties, there’s a steep learning curve to be had. Bricks and mortar properties take not only expertise but also a relatively intensive amount of management.
If an owner is devoid of expertise, it may be necessary to hire someone to deal with leasing matters as well as day-to-day management. There is a fee for that, which typically fetches between four and eight percent of gross rental.
House flipping for profit is all about getting in for the short-term and then selling at a markup. And it’s true that many investors do make money at his pursuit, but a lot depends on the neighborhood where you make your investment, in addition to the variety of hidden costs that come with the renovation of the property.
Bottom line: Flipping is far riskier than owning rental properties.
Investing in Vacant Property
There’s tremendous potential in vacant property in a neighborhood which is gentrifying, or should the land lie in the pathway of a proposed sewage or water line. All the same, investors must pay for both the buying and the selling and the capital gains is a definite hindrance.
Invest Your Time and Increase Your Profit Margins
Development of property, managing property, and the administration involved in this very often necessitates a small army of specialists. A small army of specialists necessitates a sizable fee.
If you’re pretty adept at making housing repairs, at accounting, or perhaps at showing vacancies to potential renters, there’s no need to shell out fees for hired help. Thus, depending on your skills and you availability, these could be particularly worthy trade-offs.
It’s What You are Renting and Who You are Renting to
You do hear the horror stories and you do hear them relatively often. Renters paint entire houses in the most hideous of color schemes.
Renters turn that newly refurbished rental apartment into a squat for their drugged-up buddies. Renters cause all forms of damage that you’d never even thought possible.
Thus, you should always vet every renter thoroughly and also check on them frequently or you’re almost bound to learn the hard way.