The fact is, getting rich quick can happen on occasion, but in reality, getting rich smart is the only way to go and utilizing real estate investments can lead to wealth. Like any type of investment, there is always a risk involved. To be successful with real estate investments, preparation and planning are important. There are a few questions you should ask before you purchase a real estate investment.
Would I like my real estate investment to be a long or short term real estate investment? There are advantages and disadvantages to both types of real estate investment. Short term real estate investing may offer a more rapid return, but the risks can be hidden. What if the real estate investment property requires more work than you had initially expected? What if the real estate investment property doesn’t sell as fast as you had thought?
Chose short term real estate investing when:
- The real estate investment property is in an area where property values are stable, but not significantly increasing.
- You have the ability or the connections for getting repairs done at a reasonable price.
- You are organized enough (and have enough time) to rehabilitate the property quickly.
- Your tax situation can withstand a possible capital gains "hit."
In long term real estate investing, single family rental homes are popular and should be considered when:
- The long term appreciation rate looks favorable.
- You do not mind dealing with renters.
- You do not have the funds available to do a full scale "fix and turn."
- You need a continuing tax break.
Some other real estate investment strategies include:
- Start small. Purchase real estate investment property in your area so that you can determine what renovations are necessary. You can do the work yourself, and if you can’t, your options for finding a contractor will be easier if you live in the area, either by local reputation or word of mouth.
- Buying at a bargain price. This means you purchase the real estate for 20% below the current market value.
- Buying properties with unrealized potential. The real estate investment is bought at the current market price and then you change what is necessary to increase the value of the real estate investment property. The value of the real estate investment property should increase at least by 20% in the first six months.
- Investing in a property that you believe will soon increase in value. This technique has worked at times, but this strategy depends on luck alone.
Before you purchase a real estate investment property, have an exit plan if things are not working out. Remember that the economy, interest rates, layoffs, job opportunities and construction trends impact every investor. Pay attention to trends and communicate with local brokers, appraisers, investors and real estate attorneys. Your exit strategy will help you make a better decision as you invest into the future. Plan your goals in advance. No one is forcing you to buy. Pick your time, and pick a property you can live with for a while. Worst case, if the market does not move the direction you expect and the value does not go up, at least your tenants will pay off the loan.
By R. S. Wagner