Monday, October 21, 2019 / by Natasha McNealy
Investing in real estate can really be a great thing for your financial portfolio and a great way to see continuous cash flow. However, the downfalls in real estate investing are that it can be very risky and often times there are long term commitments and up-front expenses that you should be ready for before you decide to invest. Here are the two main ways to invest your money into real estate that you will need to evaluate in order to decide which route is best for you.
One of the most sought-after opportunities in real estate is to find a home that needs some loving and turning it into the modern-day dream home. However, a lot of this that is seen on TV does leave out a lot of the un-glamorous parts - for starters, expenses aren’t necessarily coming out of your pocket while you're watching it all unfold from the comfort of your own couch. However, if done right, you can find yourself making a great profit. A RealtyTrac report found that in 2016, homes flipped in the first quarter yielded an average gross profit of $58,250! They also found that flipper investors received almost 50% of returns, which goes to show how great this investment can be. Advantages to home flipping and then selling do have some great perks. For one, the actual purchasing of the home that you will flip is usually cheap. They could be foreclosed homes or older homes that sell under market value. This means you will have to put down less money up-front when going into your investment. Another perk is that once you are done with the actual renovations and the home is sold, your work is done and your bank account just got larger! You are no longer responsible for the owning of a home and you won’t have to deal with tenants. Investing in short-term real estate like this allows you to get in and out quick, avoiding any market fluctuations or issues that may arise in the future of the home. However, there is, of course, going to be some cons to this type of investing as well - most notably, it could be a flop. Time is money when renovations start, and any setbacks or issues with contractors or underlying issues in the home will cost you more money. If things go off the scheduled timeline, there could be consequences. Unforeseen issues like zoning permits, gas or electrical problems or mold infestations are all possibilities that you will need to be prepared for.
Buying & Renting
Another way to invest your money into real estate is to buy a home and then rent it out. The pros to this type of investment are that you will always have a steady stream of income from monthly rent payments from tenants and that holding on to long-term real estate can appreciate over time and in the long run, you can make more money on the property. As the landlord, you can decide a monthly amount to charge per month that will cover your mortgage payment, property taxes, HOA dues if necessary, insurance and maintenance coverage. Essentially, you will have to put a lot of money down at first, but over time, you will make it all back and then some. However, the risks of buying and renting a property are something to think about. As a landlord, it is your responsibility to take care of any maintenance problems and handyman duties. Anything can happen in a home as we all know, however, although it may not be your living situation problem, it still becomes your job to get it fixed right away. Another risk that owners take is not being able to find the right renters. Tenant issues can end up costing a lot of time and lost money if you do not find the proper ones. Finally, since you do put so much of your own money up-front to purchase the property, it may take some time to see it in full return, even though you are receiving monthly payments. If you do not have sufficient funds to be able to not see that money back for some time, it may not be the best route for you.