When you think of investing in real estate, one of the things that will come to your mind is home. But, of course, the real estate investor has plenty of possibilities when making the right investments, and they’re certainly not all physical assets.
According to Sean Tarpenning, real estate has been an investment vehicle that has been popular over the past 50 years, or at least it has been for the last 50 years. Let’s take a look at some of the top alternatives for individuals looking to invest and the main reasons to invest.
If you decide to invest in rental properties, you’ll become a landlord. First, it would help if you thought about whether you’re confident in this job. As a landlord, you’ll be accountable for the costs of the property’s mortgage, taxes and insurance, as well as maintaining the property, locating tenants, and handling any issues.
If you do not engage a property management company to manage the details, becoming a landlord is an active investment. Based on the circumstances managing the property and tenants could be a 24-hour task, which isn’t always pleasant. However, if you pick your tenants and properties carefully, you will be less likely to have serious issues.
One of the ways landlords earn cash is by taking rent. The amount of rent you can set is contingent on where the rental property is situated. However, it’s difficult to figure out the ideal rent since if you ask too much, tenants will be pushed away, and if you are charging too low, you’ll put money in the trash. The usual approach would be to set a rent that will pay for expenses until the mortgage is paid. After that, the majority of rent is a profit.
Another method by which landlords earn money comes from appreciation. If your property grows by value, you might be able to sell it at a profit (when it is time) or use the equity to fund an investment in the future. Although real estate is known to increase in value, there aren’t assurances.
As with day traders, who are a long way from the buy-and-hold investor, Flippers of real estate are completely different from the landlords who rent out their properties to buy-and-rent. Instead, flippers purchase properties with the intent of holding them for a limited period, usually three or four months, before selling them at profits.
There are two basic methods to flip a property:
- Repair and upgrade. By this method, you purchase a home which you believe will rise in value if you make specific repairs and upgrades. Ideally, you finish the task as fast as possible and then sell at a price higher than the total cost (including the cost of renovations).
- Hold and then resell. This kind of flipping operates differently. Instead of purchasing a home and then repairing it by fixing it up, you purchase in a market that is rapidly growing and hold it for a couple of months before selling it at a profit.
If you decide to flip a property in any way, there is a chance that you will not be able to sell the property at a price that makes a profit. This could be a problem since flippers typically don’t have enough cash in reserve to pay for mortgages on houses for the long term. However, flipping is a profitable option to invest in real estate if it’s done correctly.