For most people, the idea of "getting into the real estate game" seems laughable. We have this idea that real estate is a hard market to get into. It feels as though it takes a lot of wheeling and dealing to succeed at or that only multi-millionaires can actually afford the expenses. Luckily, this is a misunderstanding. While it's true that trying to buy and sell hotels and mansions maybe a little bit outside of your price range and free time, the truth is that it's actually incredibly easy to get your foot in the door of modest residential real estate properties and to start building a variety of passive income sources. Once you start thinking in terms of buying up little houses and using them as rental homes or Airbnb listings, the budget and time demand becomes a lot more reasonable. If you can see yourself enjoying the life of a casual local landlord making friends, doing repairs for, and swapping recipes with tenants who aren't that different from your own family, then investment property is a great way to put your current savings toward long-term passive income.
Two Ways to Buy Investment Property
When an individual, family, or business buys real estate to make money off of, this is known as 'investment property'. Since property values almost invariably go up with the housing demand of a growing population, this is an incredibly popular form of investment that is generally more stable than trying to play the stock market. There are two primary ways to select investment property to buy. You should pick your selection method based on your combination of budget, opportunism and the amount of time, and effort you want to put into making the house profitable.
Buying Move-In Ready Property
Your first option is to buy a home that is already completely updated, in good repair, and is essentially "move-in ready". This means is that if you're very clever, you can have a renter moving in and paying full rental price within one or two months of closing the deal. This option is often how some people choose their first investment property in order to ease their way into the responsibilities of being a landlord. While rent should more than cover the mortgage payments, you will still need to calculate for annual maintenance to keep the home nice and protect your property values. However, this is all you'll need to worry about in terms of repairs or upkeep.
Buying 'Flip' Property
The second option is to find a fixer-upper with good bones. You might be wondering why you would want buy a shabby house as an investment property. The answer is because when an owner has to sell a home that is not move-in ready, they often have to accept a significant slash in prices. This usually happens when a homeowner doesn't have the funds to fix the place up or would rather get the property off their hands than bother to repair it for the full market value. If you're willing to take on repairs and a few minor renovations, what you'll be looking for is a home that has a larger discount than the cost to repair. This gives you the perfect investment opportunity to 'flip' to yourself, buying low, repairing, and renting high, thus getting the best possible ratio of investment to returns.
This is only the first half of our two-part article! Join us next week for the second half where we'll talk about why flipping is part of the real estate ecosystem and how to choose a home to flip into your own rental property. For more information about financing a flip, contact us today!