What comes to mind when you think of investing in real estate? For some, it’s buying a home to live in.
For others, it might be a place to park excess cash. Some prefer commercial over residential. A multi-family building is a favorite commercial investment option, if you can find one. Properties with more than five housing apartments are in high demand, and as a result, sales prices are high and driving cap rates (returns) low right now. Small commercial office buildings and small strip shopping centers are also popular among commercial investors.
If you prefer investing in residential properties, then single family, duplexes, and multi-family properties with four or fewer units are your choices.
Before you start gobbling up properties, however, you need to decide on a basic strategy. Do you intend to buy, fix up, and flip? Or do you plan to buy, fix up, and hold? They are different approaches and with divergent outcomes.
To flip, you need to buy it at a lower price in order to repair it inexpensively, and sell it quickly with a good profit margin. You are turning Cash, not building equity. Mistakes could cost you dearly, so choose your projects carefully and work with reliable vendors.
If you intend to build wealth by purchasing, perhaps fixing up, and holding it, you need to follow some guidelines. Unlike a flip, you need not buy it at as severe discounted price. You may or may not have to spend a lot to fix it to livability standards. What you do want to ensure is that your monthly costs are well enough below your monthly rental income so that it cash flows well. And since you are holding the property, purchase in an area that is appreciating in value in order to increase your equity over time.
And unless you are experienced in investing, you should seek good counsel from experts such as a Realtor, CPA, and attorney.
If you’d like a copy of two outstanding “how to” books on flipping or holding, call or email us and we’ll get you one.