Simple Real Estate Strategies That Allow You to Make Huge Profit
Simple Real Estate Strategies That Allow You to Make Huge Profit
Real estate is a property that consists of land and buildings with its resources, whether it is movable or non-movable. Real estate is one of the most popular among investors. Over the years, it has grown to be major area of investment with very high profit margins. Even the average man dreams of investing in real estate because it is easy to understand as opposed to investing in bonds or mutual funds which are complicated. As Warren Buffet, world’s best investor once said in an interview “I only invest in businesses, I understand; doesn’t matter whether they are big or small.” Real estate is the business which almost everyone understands.
Here are the few simple real estate strategies that allow you to make huge profit.
1. Buy and hold
Buy and hold is the simplest strategy in which you buy your own property for the purpose of renting out to a tenant and collecting monthly fixed rent from him. This strategy has potential to provide you with positive cash flow every month. This also has potential to put away the equity every month with your mortgage payments in turn providing a profit. The very simple exit strategy for it is if your current tenant leaves then you can always find new renter, lease the property or even sell the property.
Before you buy and hold a property, you should be sure that you get positive cash flow to make huge profit. Before you buy a property make sure that you know what you are buying and from where are you buying. Make sure you buy a property which does not require any investment like renovation before renting it to a tenant because starting with negative cash flow is bad idea. Other thing is make sure that you are buying a property which is located in area which is hot property in real estate market. Not necessary should it be hot property in current market but it should have strong potential to be hot property in coming times, then it is a good buy. In metropolitan cities where the market price for a property is very high, hence your mortgage payment will be high but rent in such areas is very low. So it’s very bad situation of negative cash flow. Most important is to make sure you don’t buy a property which has a decreasing market value.
Once you have got good property, you should look for renter who can meet your terms and payments. You should always look for the renter who has good potential to pay your rent. You can do that by checking his earning status and credit scores which will give a good idea of present financial situation of renter. When you are making agreement please make sure you cover a point on renters damaging property because it is quite a possibility if you miss this point you might end up paying for the damages and maintenance of the property. Renters damaging property is nothing but damage done to your property in the presence of renter. To avoid such situation you should always put in agreement that if any damage to property is done by renter then he should pay the penalty for it.
Overview: This strategy has good amount of positive cash flow for long period of time with very simple exit strategy. Over the period, capital gain is good. Energy required is less over the period but initial investment is required to buy the property. This strategy requires more effort to qualify for the mortgage.
2. Hold and flip
Hold and flip strategy are something in which you buy a property below market price and then renovate it to sell as soon as possible at market prices. This strategy does require good amount of investment even after buying it. This also demands you sell or rent it as soon as possible you have renovated it because you do not want your money to be stuck for long period of time. The longer you keep this property, the more money you will be losing. This strategy requires a good understanding of real estate market in terms of money and demographically which area is good for such investment. Even good timing is required to the buy and flip. As you are investing and quickly selling or renting it and this gives quick capital gain. You are selling this property within 3 months of investing which gives good profit within very small period of time. The exit strategy is most likely you might end up with selling the property. Such strategy is risky because if you fail to sell your property at the right time, then you might end up selling with lower value.
If you decide to take up this strategy, then you must ensure good investment as it requires huge amount of investment in early stage as you are renovating it after buying the low priced property. As you are renovating it you become dependable on other people like civil contractors, labors etc. In such situations things do get delayed. So keep in mind to have good capital in front and very good planning for renovation. Other thing you should keep in mind is to keep an eye on the market. Unless it has very good potential, lender won’t qualify you for mortgage. You might find lenders in unconventional ways.
This strategy might be high risk strategy but the output you will get is the highest among any other strategies. You have to look for a property which is available at lower value than market value such as old building which is abandoned or deteriorating. But it should demographically be at good place that is in the area of hot properties. Once you have bought the property you have to cope with the renovation. In advance you must prepare well for renovation such must get good contractors who can finish your work in short time and economically. You should scan the property even before you buy the property and make list of material you might require for renovation. As soon as you buy the property you must place order for required materials. You must keep looking for possible buyer or renter very quickly, so that you can start earning as soon as property is renovated. You must always keep in mind that you apply this strategy where you are able to sell your property within 4-5 months.
Overview: The cash flow is not instant as you are buying and renovating, hence your capital is stuck for some period. Capital gain is high as it could be quickly sold after buying for lower market price. But it does require high input for longer period as initial investment is very high which includes buying property and renovating it. But it can be easily qualified for mortgage because it has potential to produce high profit.
3. Lease to own
In lease to own, you buy a property and instantly lease this property to a renter for predetermined time and predetermined rent with an agreement. This lease allows you to make someone else owner for fix amount of time on agreement for fix payment. Here, what you can get is instant cash flow as tenant is supposed to pay a down payment up front before leasing the property. And you also get lease cheques regularly. Here you will get a buyer who is pre-qualified and saves commission for real estate agents. Most importantly very low maintenance as the buyer has taken the property on lease it is their home, all maintenance wholly belongs to the buyer. In case tenant leaves early, before the lease period ends, you get to keep to property, down payment and credits are also yours. The exit strategy is very simple that is, if your current tenant leaves then you can always find new renter, lease the property or even sell the property.
This is a great strategy in terms of real estate investment but you must keep few things in mind before you apply this strategy. You must make sure the buyer qualifies to buy the property before the end of option term. In terms of leasing agreement this is very important. If it is badly drafted you might end up with large damages and your buyer can easily get away without paying the penalties. You must draft the agreement such that your buyer not only pays for damages but also maintains the property at his own expense. There are not many buyers available for leased property because not many of them can afford it. But if you get potential buyer, make sure he leases your property.
Overview: In this case cash flow is instant. Capital gain is very high with no maintenance cost over longer period of time. Input is equal to none in this strategy as there is no initial investment after buying. Only big problem it has is if you don’t have finance of your own then it is very difficult to get mortgage.
REIT, it stands for Real Estate investment trust. This is a trust formed by various investors together to invest in real estate. This type of investment is done mostly in commercial areas to build large building like skyscrapers, mall etc. as it require high investments. It is a very good way of investing but profit is shared depending on your share.
You can buy your share via your stocks account. It does takes burden off your back as all you have to do is invest and then trust takes care of everything. It is also something which is safest way of investment. Trust also provides security to your investment. Each and every country has its REIT which provides individual investor a good and safe opportunity to invest.
Overview: once the investment is down you will have positive cash flow. As overall capital gain is shared among the shareholder, it will depend in your shares. Input is one time that is just an investment as there is no buying of property by you, it is the trust that does that for you. You don’t require any mortgage for it as you can invest whatever you have.
5. Wholesale real estate
Wholesaling involves a real estate deal, by simply writing a contract with the owner and then sell the contract to any buyer. Wholesaler never actually owns the property. He actually hunts for the great property and deals with variety of property tricks. He is like a middle man who works on commission or fee. This is one of the safest ways of investment as there is buying of property and maintenance. But it definitely depends on the market situation of real estate.
Today there are large numbers of people looking to buy or sell the real estate assets, such middle men are very much in demand. This requires very low setup cost after this it very much depends on your networking skills.
Initially seek for good property which is available for sale, get the contract from them and sell the contract to the retail buyers. Then retail buyer will sell to buyers.
Overview: Here cash depends on how quickly you sell your contracts. Capital gain is fixed on your fee or commissions and type of property you are dealing with. Energy required from your side is to find the potential investors and some time it may require time. There is not much investment required so there is no need of mortgage related to this.
These are few real estate strategies that allow you to make huge profit. Every investment depends on your understanding of real estate market. The more you understand, it will be much better to gain during investment. Whichever strategy you use, it completely depends on your interest in terms of property you buy. As the market is growing day by day just look at places like Dubai etc. you will never face down slide. It just depends on your buying capacity. The more you buy, the more you will be able to sell at higher price.