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Real Estate Investment Strategies
For those looking to enter the arena of real estate investing there are several different real estate investment strategies to consider. According to a 2004 study, 23% of the homes sold were bought as investments. This shouldn't be surprising considering the steady increase in prices in recent years. But there are many different ways to make a profit from investment properties. We'll start with one of the most popular investment strategies, 'flipping'. This is the practice of purchasing a property with the intention of selling it for a quick profit. When flipping properties, investors must be realistic about how much profit they are going to make from a deal, and often have to settle for a much smaller profit than first anticipated. The alternative to selling and making a quick profit is holding on to a property to take advantage of capital appreciation and tax incentives. A general rule of thumb regarding real estate is the longer you own a property, the better chance you have of making a profit from it. When calculating the total costs, remember to include repairs, insurance, interest, property taxes, etc., as well as monthly payments. Calculate these costs vs the amount you will save from tax write offs. Remember that there is no such thing as gain without risk. Although property values have increased for many years in most markets, there is no way to predict how much longer or how much higher they will go. Aside from appreciation and tax write off gains, renting a property can also offset some of the costs. Consider the time and money you are willing to spend on managing the property, finding tenants and making necessary repairs. Another avenue of investment is foreclosures. As with any real estate investment strategies, foreclosures are not without risk and usually involve a significant cash investment. Foreclosures occur when property owners are unable to make their mortgage payments, usually over an extended period of time (several months). Many of these properties also tend to need repairs. Someone who is about to lose their home isn't normally motivated to maintain it or keep it in pristine condition. You may need to invest more money, effort and time to bring the home back to marketable condition. Abandoned properties are similar in many aspects to foreclosures with some different legal obstacles to consider. The main difference between the two is that abandoned properties often have no clear title. In this case, the additional costs for title searches and legal action need to be factored in. Nowadays there are several purely paper real estate investment strategies to consider as well. Real Estate Investment Trusts or REITS are one of these options. Among the other options are property bonds, mortgage backed securities, mutual funds, trusts, and stocks specifically oriented toward real estate. These are great for those who want to invest in real estate without the headaches of property management, legal documents, cash outlays and the actual physical property. Be sure to consult with a broker before you invest in any of these options.
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