Real estate is considered to be the most profitable business, even for beginners, in comparison to the other spheres. However, many people have some concerns about getting into real property investing, because this field of business requires big initial investments. It is not true. If you make some efforts, you will be able to gain good revenue. In this article, we will review some most popular ways to get into real property investing and receive active or passive income.
One of the methods of making money in real property business is residential rentals. People are always in need of a place of living but sometimes they can not afford to purchase a property and thus they choose to pay a mortgage.
The difference between the short-term and long-term rents is the period of the lease. The short-term rental properties are available for a short limited period of time – overnight or for a week. Let us review some advantages of long-term rents over short-term ones.
- More constant cash-flow. You will receive the same stable amount of money per month and thus, your income will be more consistent, in comparison to short-term rents and the revenue from vacation properties.
- Long-term tenants usually pay utility bills. Sometimes the utility bills may be quite high, and in case of long-term rentals, these expenses are usually passed on to the tenants.
- No need for furnishing the house. The owner of the house is usually not responsible for buying furniture and other items, due to the reason that the tenants bring or buy their own possessions.
The key factor you need to consider before buying a rental property is the location. You should make research on the neighborhood areas, examine the prices, the infrastructure and other options. The location influences not only the appreciation or the growth in the value of the property but also your chances of renting it faster. Sometimes the location of the property plays a greater role than the property itself.
Lease options are perfect opportunities to start investing in real estate without great capital or credit. It is a good choice in the growing marketing conditions because you are able to establish the price early.
A lease option is a term that means “rent-to-own” or the lease with the option to purchase a property. The lease option includes the rent with the fixed amount of payment per month and the opportunity to buy a property at any time as long as the agreement is in force. The term of this agreement can typically last from one to three years.
The investor does not have to buy the property. If he does not purchase the property at the end of the agreement, the option is no longer available. Also, the investor can sell the option to another buyer. The buyer of the property is responsible for the maintenance of the property, he is often obliged to pay some costs like insurance and taxes.
You can purchase a property on sale and then sell the rights to another investor. During the time when the lease option remains in force, you should not buy the piece of real property at the end of the lease, you will be able to gain the profit.
Flipping And Renovation
Home flipping is a strategy of buying a property, holding it for a short time and then selling in order to gain the profit. In some cases, the property for flipping needs a lot of repair and renovations to raise the initial value.
There are four major types of renovating the house: basics, personal preference, value-added and curb appeal. The basics are retaining bearing walls, repair of the roof, fixing the floors and repair of the basement. Curb appeal project includes the good-looking lawn, painting the walls inside and outside and cleaning the carpets. The value-added project consists of the renovations of the kitchen, new windows, new siding, etc. Personal preference projects are some non-obligatory renovations like a swimming pool, wine cellar, tennis court, hot tub or pond.
Flipping is becoming more and more popular in recent years. The first-time investors may find this process difficult to understand due to the reason that if you choose the wrong property, you can easily lose the investments.
The real value lies in the problematic properties located in nice neighborhoods. However, it is quite difficult to find such properties if you do not have a network of professional real estate agents in the local area. Also, you need to cooperate with a reliable contractor who helps you to determine the value of the house after repair.
Before buying the property, you need to talk to real estate agents in the area, do market research, look through the advertisements about selling the houses, look at the properties that were sold a short time ago. You will understand what people are searching for in the area.
The best types of properties for flipping:
- multi-family houses;
- retail property;
- mixed-use property.
Instead of flipping the house or the apartment, you may start flipping contracts. This is also one of the most popular approaches to earn money without big initial capital. The method of flipping contracts is suitable even for beginners. Moreover, it is a perfect way to get into the business.
According to this strategy, the investors sell their rights to purchase the property instead of the property itself. The investor who flips the contract enters the agreement with the owner. The original owner of the property does not sell the house, he rather gives the right to purchase the property later. To begin with the contract flipping, you need to write up the contract, get approval and then find the end buyer.
Vacation rentals are the other opportunity to receive passive income through investing in real property. You are able to have a stable cash flow if you choose the property near a popular tourist location or in a nice area close to the city center or transportation hubs.
The important fact is that the ownership of the property is a non-mandatory condition for earning the profit from it. Some of the most successful world’s real estate agents who are specialized in vacation property do not have the homes for rent in their possession. Realtors usually pay great attention to communication with clients and networking.
Hard Money Loans
Hard-money loans are a suitable method of investing if you do not have any other opportunities to make your first transaction with the dealer of the property. These loans last for a short period of time and for this reason, the rates are quite high.
You can also try yourself in the role of the hard-money lender. To start, you should have some initial sum of finance that does not correlate with your main source of income in the real estate market. Over time, you will be building your network, gaining experience and earning the capital. Then you will be able to see significant revenue from the bridge loans you provide.
Commercial properties offer incredible opportunities in the real property market. The developers of the commercial properties pay attention to buying, holding and renovating the properties instead of flipping. Investing in commercial properties is a good way to gain active and passive income. This type of property is always profitable because there is always a need in offices for businesses. Also, the period of lease of these properties is usually longer than for the other categories of real estate.
Let us review the benefits of commercial real properties over the residential and industrial.
Incredible appreciation in value. Investing in commercial real property historically provided higher appreciation over other types of investments. The value of the property usually depends on the different internal and external factors. Internal factors are the improvements made in property. Supply and demand imbalances belong to the external factors that affect the value of the property.
The higher income. The return from the commercial property is typically higher than from the other type of property due to the number of tenants and the size.
Less risk of income loss. Investing in commercial properties is less risky if to compare with residential type of properties. If the owner of the residential property loses tenants, then he loses the whole amount of income. The commercial properties usually provide space for a large number of residents, that is why you are insured against the loss of revenue.
Prepare A Plan
To achieve any goal, you need to draw up a plan. Firstly, you need to define your financial stage and increase your savings. The second step is choosing the specific investment strategy that will serve your interests. The most important step if to find the property for investing. Make a research about the location of the piece of real estate. The key factors here are economics in the area, employment rate, population, price-to-rent ratio, public transportation, crime rate, and safety, schools, etc. After that, you need to choose a niche for your investment property. Then build up your team, consisting of a property manager, an attorney who specializes in real estate, hard money lender and contractors.
There is plenty of options to get into the real estate business. You can consider long-term rentals, lease options, renovation of the house, contract flipping, buying the properties in vacation areas or purchasing a commercial property. Some of these approaches are suitable for first-time investors, the others require some skills and some knowledge of the field.
No matter what method you are going to choose, you need to weigh the pros and cons, talk to the professionals in the sphere. Find a mentor like an experienced real estate agent or a skilled investor. Visit the networking events where you can get acquainted with the specialists in your niche. Establish short-term and long-term goals and create a business plan. A good plan is half of the success. Then you are able to pick the most suitable type of property for purchasing, buying-and-holding, flipping or renovating and reselling. Follow the instructions from this article and you will be able to make progress in the real estate industry in the near future.