Real estate is perhaps one of the easiest investments to learn, but there are several ways you can approach making a profit. Some are strategies that are carried out over a long period of time and others are quicker ways to make money, almost instantly if you know what you are doing. If you are looking to get into real estate investing, here are some of the most popular types of real estate investment strategies in use today.
1) Buy and Sell Flip Homes
This is, perhaps, the quickest way to learn to make money investing in real estate. The one thing to keep in mind is that you want to buy low, make a few improvements and sell high. Mark up your selling price above what you invested, including materials and labor, and you’ll have a tidy profit in a relatively short period of time. Fixer-uppers are a dime a dozen in some parts of the country and have netted new investors a tidy little sum over a period of time.
2) Commercial Real Estate – Rentals
Here is one area of real estate that will take a few more complex types of calculations. You’ll want to get help in this area of real estate because you’ll need to understand the LTV ratio when calculating profits. The amount you can collect minus any vacancies which are bound to happen along with repairs and administrative costs are a bit tricky. If you have never invested in rental properties, it might help to work with a broker who can guide you in the beginning or with a partner who knows the ropes.
3) Buying and Selling With a 1031 Exchange
Many investors are aware of the fact that the government has made it more profitable for investors to keep profits if they are willing to reinvest capital gain with a 1031 exchange property of like kind. Taxes are deferred to the very end when you decide to sell out, but in the interim, if used correctly, you can continue selling one property to earn a profit and by reinvesting in properties more valuable but of like kind, you can continue growing your wealth by avoiding taxes which could account for a huge chunk, if not all, of your profit.
4) Breaking up Rentals into Smaller Units
Here is one of the lesser known strategies for making a profit in real estate. Some investors buy large family homes that they may be able to charge, for the sake of example, $1,500 a month in rent on a 5 bedroom home if it were leased as a single family dwelling. However, by making it into a boarding house kind of unit where bedrooms with shared kitchen facilities can go for $450 a month, that same home would now net $2350 a month. An $850 increase in rents collected. However, it is always wise to keep mortgages in mind along with any insurance you need to carry and maintenance fees. Always adjust your rents so that you continue to make the profit you need to realize in order to have made a wise investment. If rentals in the area can’t substantiate the amount you need to charge, don’t buy that home. Look in other neighborhoods or cities.
5) Commercial Real Estate – Business Leases
Some real estate investors only want to deal with businesses because they are seen as a safer option. Businesses don’t usually trash properties, are willing to pay higher rents and most will pay on time to avoid being locked out in an eviction. Not only is that bad press for the company but it also leaves them with nowhere to operate from.
6) Making Improvements that Carry Tax Benefits
When it comes to investing in real estate, there are some improvements that you will make that may not actually be covered under current tax laws. Most probably are, but on the off chance that an improvement costs more than the benefits you’ll realize, it’s not a good investment after all.
7) Investing in Properties You Already Own!
Which brings us to the next item on our list, investing in properties you currently own. Sometimes an investment offers a much higher ROI when added to your original investment. Here is where a CPA (certified public accountant) who is going to be a proficient tax specialist will come in handy. Have your accountant do the calculations based on current tax laws. If the amount you are spending on improvements will be less than the tax benefits you receive, it’s a good investment. Sometimes only an accountant can work the calculations to ensure you do realize a higher ROI.
8) Lowering Mortgages with Refinancing
New investors often find that lenders will finance, but mortgage rates are higher when the investor is questionable. You may have impeccable personal credit but not so much as an investor. Once you have established yourself and have paid down some of the principal, perhaps having made some improvements, you can often refinance at a lower rate. Get a larger sum than your current outstanding principle and use some of that for even further improvements, raising the property value even higher, and you will have made a very sound investment.
9) Another Word about the Benefits of Contracting Real Estate Accountants
As mentioned above, you can reduce your taxes based on improvements you make many times, but there are other tax breaks you can receive as well. Although not suggested, sometimes having your properties reassessed can lower their net value, thus reducing taxes you pay, and other times it is better to take the tax breaks for money paid on interest. Also, there are tax breaks for so many other things that you may be able to claim so much more than you imagine. A CPA is your go-to tax specialist and you should always contract one experienced in real estate investing.
Whether joining a real estate investment group, investing in a real estate holding fund or simply striking it out on your own, there are many, many ways to make money in real estate. The one really important bit of advice you should take away from all this is that you can make money in several ways but you need to understand any risks involved and whether or not you can weather a storm. Only invest in what you understand and never fall for a get rich scheme. You can make money but it takes time, patience and understanding your market to make the most on your investment capital. The magic formula then is, learn in order to earn. Manage that and you really can make money investing in real estate.
Categories: Real Estate