We can't blame you if you are looking into real estate as a means to grow your investment portfolio. After all, one of the few known and proven vehicles of success with regard to investment is engaging in the real estate business, but it's not as easy as you think it is (because we know you're thinking that if neighbor Bob can do it, you can do it too!). Cain Realty Group brings you the no BS essentials of what you should know when starting out as a real estate investor.
Fact 1: There are two main strategies to earning money through real estate; you either "fix and flip" or "buy and rent [out]".
These are two different money-making methods, and you have to know which one works better for you before you dive right in.
Fact 2: The fix and flip is as good as how you see it on TV, BUT...
Flipping houses is a lucrative investment strategy when done right, with official statistical reports indicating an ROI of 50% in homes flipped for the first quarter of 2016. That's an average gross profit of $58,250-- the highest average gross profit from home flipping since 2005.
The main advantage of the fix and flip is that investors can easily find distressed properties that are sold cheap. Foreclosures are easy to find and are almost always sold under market value. Therefore, this requires a smaller upfront investment amount, with little to no need of securing financing. All you have to do is buy, repair, and sell. And with an average of 5-6 months in making repairs, your investment wouldn't take as long to return as it would if you invested in stocks or other investment vehicles. Also, fix and flip does not require the investor to play the role of a landlord and engage in landlord-tenant related struggles (such as collecting rent).
Fact 3: ...BUT home repairs can be expensive and unforeseen complications are almost always to be expected.
Buying a fixer-upper is truly cheap, so acquiring the "raw material" for the business is easy. The hard part, however, is the expense to repair the fixer-upper to get it back to its livable state. Here's a useful tip: if you've decided on working on "fix and flip" as your real estate business method, don't just go out and buy ANY cheap home you find on the market. Hire a qualified inspector who can project the amount it would take to have the entire home repaired BEFORE you make a commitment. And from his opinion (and the combined amount of your purchase price and the amount it would take to have the home fixed), make an informed decision on just how much you can make out of the home after all your effort.
The professional who will do the estimates for you should also be able to predict possible zoning or permit complications that may arise out of ownership of the home and the repairs that would take place while you are prepping it up for selling. Remember that repairs ALWAYS entails two things: paperwork and permits. Otherwise, you will have a hard time selling.
Fact 4: Home rentals are rising fast, and landlords stand to gain A LOT (with current market standards).
Did you know that rent is rising faster than median home prices, as reviewed in data of 45% of home markets analyzed by RealtyTrac? Therefore, the idea of having homes to rent out is becoming more appealing to potential home investors. Passive income in the form of rentals is one of the best options for buyers wanting to grow their investment portflio through real estate.
Fact 5: "Buy and Rent" offers two main benefits: a steady income stream, and steady growth of your investment via the home's appreciation over time.
Having homes to rent has its advantages, with having a steady income stream as the most appealing advantage of them all. Even if you acquire property via a loan, the rent paid by your tenant basically covers your mortgage payment, property taxes, HOA dues, insurance, and other costs. And if your home is strategically located in an in-demand neighborhood, you could even charge a rental rate that would pay for all those AND have some left over for you to enjoy.
Also, real estate ALWAYS appreciates over time. So the longer you hold on to a property while you are earning from its rentals, the higher its value becomes over time. Market dips and market downturns wont be a concern on your part, as you can continue collecting rent without worry.Fact 6: But renting out a home takes too much effort and time, AND your capital is tied up because you aren't selling (yet).