Owner or Flipper? Beginner’s guide to investing in residential real estate
Of course, although not without risk, real estate remains one of the safest and most rewarding investment opportunities. From flipping to leasing to rehab, there are many ways to go, which provides options but can be daunting for those unsure where to start. Let’s focus on two of the best investing methods for beginners.
buy and keep
If you’re looking for a conservative, low-maintenance investment, buy-and-hold might be the perfect fit for you. Simply put, it’s about buying a house and holding it for an extended period of time as it increases in value. More often than not, the owner will lease it while owning it in order to generate positive cash flow. Note that obtaining financing may be more difficult than it was for your actual home — for a non-primary home, the down payment could be 20 or even 30 years old percent.
Market timing is important, but timing yourself is even more important. How long do you want to keep this asset? This answer will guide further decisions. A property you want to own for five years versus one you want to own until you retire in 25 years will rarely look the same. Smart investments in the home, such as replacing flooring, repainting walls, or new kitchen finishes, can increase home value and projected rent, but be careful not to eat into your eventual profit margin. Look for renovation projects that have the best return on investment.
At the risk of sounding obvious, the house must be an income-generating asset. When researching potential homes to buy and keep, you should fully consider current rents in the community and project what you would realistically collect each month after taxes, insurance, utilities, potential vacancy, HOA fees, the if applicable, etc. a well-researched and executed buy and hold is a very safe bet on future prosperity.
To return to
More than just reality TV fodder, buying and flipping homes after a quick rehab is still a very valuable way to invest in real estate. This method is much faster and requires much more work during this period. Given obstacles such as rapidly changing market dynamics or unforeseen renovation complications, it can be more risky. So you will have to do a lot of homework beforehand. Not only are labor costs adding up fast, but a particularly pressing concern right now is the skyrocketing cost of certain raw materials.
The key to getting started is being able to identify an undervalued home that you can project on with confidence that you can generate an immediate profit. Buying a home at 85% of fair market value is a solid benchmark to aim for in your search. It’s probably not something you see on Zillow every day, which is why the best way to find such an undervalued home is directly from the seller, which also reduces the number of competing offers you face. are likely to face.
The home can be undervalued for one of many reasons, but make sure a structural red flag isn’t one of them with a thorough inspection. Next, time is money when it comes to returning, so you should already have renovation projects and potential contractors in mind when you close the house so you can start them right away. 60 days is an aggressive but realistic window to complete the renovations, put them back on the market and find a buyer.
In certain circumstances, the rollover can be combined with the buy and hold for a hybrid type strategy. For example, buying a house and renovating it, but renting it out for three to five years to allow it to appreciate more. Of course, there are many other ways to invest in the real estate market, but these two strategies are some of the best to start with.