There is money to be earned when investing in real estate. You simply need to know the ways on how to make an investment to determine which will best fit your budget, skills, and goals.
To help you out, here are several ways for you to break into real estate investment.
Flipping properties
Flipping refers to buying a property — usually a fixer-upper — at a discount then making repairs and renovations before putting it back on the market.
Compared to other real estate investment strategies, profits come faster using this approach. This is why many investors are attracted to house-flipping. Because of the fast turnover of properties, investors are shielded from long-term real estate fluctuations. This makes flipping a safe investment strategy.
On the downside, there’s the issue of capital gains tax. Since flippers only own their investments for less than a year, they are more likely to pay a higher capital gains tax rate based on their earned income compared to long-term investors.
Moreover, flipping properties can cost a hefty sum. Consider the major costs related to this investment strategy, including the property’s selling price, expenses for its rehabilitation, contractor fees, taxes, and staging, among others.
Owning rentals
If you are cut out to manage not just property but the people who will live in it, then can have your property rented out. It’s a steady source of income that helps to offset investors’ mortgage and add equity.
Renting out properties also comes with a set of tax breaks and/or deductions to offset investors’ rental income taxes. These include qualified rental expenses such as mortgage interest, property taxes, interest, and utilities, as well as operating expenses and repair costs.
If you have more than one property for rent or if you live relatively far from your rental, you may have to hire a property manager to help with overseeing your investments and to tend to the needs of your tenants. Their fee will be coming from approximately 10% of the gross collected rent.
Moreover, since you’re also dealing with the human factor in rentals, you may encounter problem tenants or late-paying ones. You also need to set aside a budget for the properties’ management and upkeep to ensure that the turnover of tenants is low and that you keep them happy with their living arrangements.
The BRRRR Method
A hybrid of the flipping and renting strategies, the BRRRR Method involves the following:
- Buy. Purchasing a property, preferably distressed but with the potential to rise in value.
- Renovate/rehabilitate. Add value to the property through repairs and renovation. By the end of this stage, not only should your property increase in terms of value but also in terms of appeal in preparation for the next stage.
- Rent. Determine the ideal rental fee then screen tenants who will live on the property. This is where the investment begins to pay off through monthly rent payments that you can use for paying debt and mortgage fees.
- Refinance. You can have your property refinanced based on its updated appraised value. With the equity you built, you can have it converted into cash for the last stage.
- Repeat. You do the entire process all over again. That way, your investment remains liquid and better returns come in with every new cycle.
As an investment strategy, the BRRRR Method helps investors grow their portfolio quickly while building passive income, making it extremely attractive to those who want the security of rental properties and the speedy cash gains associated with flipping properties.
