Real estate investing accomplishes what few other investment vehicles can; big profits with minimal investment in a short period of time, or longer term profits that increase indefinitely as time goes by. There is one catch, though.
In order to realize these profits, the investor needs to understand how to buy investment property. Above all, the profit needs to be in the deal when it is made, and there are several ways to ensure this. In this article, I’ll share with you some tips on how to buy investment property.
Understand the Market
Before buying any kind of investment property, extensive research should be done on the area. Potential real estate investors should perform due diligence by researching:
- How the local market is doing economically. This includes knowing who the major employers are, any potentially lucrative city projects coming up and what the state of the housing market is
- The average incomes of residents. In order to market services to local residents, it is important to understand the demographics
- Local inventory. Are there a lot of houses on the market? Are people renting more than buying? If so, why? What are the condition and price range of houses for sale or in foreclosure?
Once the investor has a fluent understanding of their target real estate market, they can begin their search investment properties. A great way of getting started in real estate investing is to find a wholesale deal.
A wholesale deal begins with a house that is typically 30-40% lower than current market value. There are many reasons for properties to be discounted. One reason is the physical condition of the property. If a large amount of work is required to bring it up to current codes and living standards, the price is dropped accordingly.
In this situation, the buyer would rehabilitate the property (known as rehabbing,) add value by making repairs and renovations, and place the property back on the market for market value or above.
Another method to make a profit from this same home would be to flip the deal to another investor, preferably an investor specializing in rehabbing homes. Either way, the equity is “built-in” to the original price paid, provided renovations are not too expensive and/or a buyer is found.
Long Term Property
Flipping homes can be profitable in the short term, but once the deal is done, the cash flow stops. When learning How to Get Started in Real Estate Investing, many people first envision buying investment properties such as a home or building with rental units.
In order to generate positive cash flow after operating expenses and the mortgage, a property has to be purchased:
- As a wholesale deal
- With a large down payment
- By a person with exceptional credit
- With a large down payment and exception credit scores
To make back the initial investment the fastest, buying wholesale and fixing up real estate investment properties to rent out is the best method. The key is to understand the local real estate market and what drives it. For that information, consult local real estate experts. Don’t wait, get started today!