Serious investors know the value of a diversified portfolio. In addition to stocks and bonds, real estate should be included in your investment mix. One way to accomplish this is to purchase, hold, rent or flip actual real property as part of your investment strategy. Real estate is a solid asset which can provide annual income, asset appreciation, and quick profit. To be successful in real estate investing, it is critical that you identify what skills you have and your tolerance for risk. Then choose a type of investment that works for you and repeat that model.
Investors can make significant profits by both flipping properties as well as holding them as rentals. The difference boils down to a few considerations. First, what kind of income are you seeking: active or passive. Actively buying, fixing and flipping properties is quick cash that requires careful timing and effort. Rental properties, on the other hand, offer passive long-term income which accumulates over time. Additionally, the property value increases during this time. The downside is that you must invest time in property maintenance and tenant management.
The second concern is the risk. Flipping property is not traditional investing where you buy and hold investment. Flipping is speculation. When purchasing a flipper, you must carefully gauge the cost of refurbishment, remodeling and the cost of the holding time into the price valuation, then carefully market the home and realize the profit. Any number of variances can go wrong which can cause the value to drop and profits to diminish or even disappear, such as a delay in remodeling or a slow real estate market.
Keeping in mind that real estate is a substantial capital investment, it’s helpful to learn as much as you can. These eight basic tips will give you some direction as you venture into real estate investing.
- Location, Location, Location: One of the most critical aspects of a successful real estate investment is the location. The right neighborhood, street or community can make thousands of dollars of difference
- Consider Wholesale Properties: Watch for properties listed below market value. Foreclosure lists, courthouse auctions and short sales are just a few of the options to buy below market value.
- Understand the Tax Advantages: Before you invest, visit your tax professional and learn about write-offs, business taxes, and tax breaks. Figure these numbers into your plans.
- Manage Your Credit: Leverage is essential in real estate investing. Determine your ability to gain loans and correct any mistakes in your credit report.
- A budget for the Unexpected: Have a fund available to draw on for the unexpected. Even the most carefully planned project can have unexpected costs.
- Don’t Over-Extend: After evaluating the risk, be honest about your ability to handle the negative possibilities the opportunity could present.
- Invest for the Long Term: Real estate investing should not be viewed as a “get rich quick” scheme.
- Be Patient: Wait for the right opportunity for your skills and budget.
Real estate offers solid investment opportunities. Investors can realize a profit and positive cash flow with careful planning and research.
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