When considering an investment in real estate, there are two primary ways that investors are making money in real estate. These include flipping the property for a quick cash profit, and holding the property long term to earn ongoing rental income.
The term “flipping” real estate typically refers to locating a property that can be purchased well below its market value and then reselling it. The reason for the property’s low purchase price may be due to its need for repairs and / or renovations. It could also mean that the current owner is unable to keep up with the mortgage payments due to a job loss or other type of financial situation.
If the property can be purchased and sold quickly, it is possible to make a large profit. In some cases, investors are able to “turn” property within a matter of just days. However, in other cases, investors can get stuck carrying a property for months – or even years – at a time.
Therefore, when considering this method of real estate investing, it is essential that you do not put too much money into the property on the front end. This means that you should not over pay on the purchase price, nor should you put too much money into repairing or renovating the property. Likewise, be very aware of your carrying costs.
Carrying costs will include the monthly cost of the property’s mortgage (both principal and interest), as well as property taxes, and insurance. It will also include the cost of utilities, as you will need electric, water, and sewer in order to keep the property functional when making repairs, as well as when showing the property to potential purchasers.
The other way that real estate investors make money with property is by purchasing properties to hold long term and rent out to tenants. By buying and holding for the long term, the tenants who live in your properties will essentially help you to pay off the properties’ mortgages.
Should you hold on to the properties long enough, you could essentially own a number of properties free and clear. Once this happens, you can either sell the properties for pure profit, or continue to collect rent as a nice net amount of retirement income.
One of the best ways to help ensure you are making money in real estate investing is to have a good system for both buying and selling investment property. By following a specific system, you will tend to stick more closely to the actual numbers – and, if a deal does not make sense based on the financial figures, you should pass and move on to one that does.
For more information on how to make your long-term rental real estate deals pay off – especially when using a property manager to take up the slack of the day-to-day management operation, give us a call.
