In real
estate investments, there are several options for investors. They can invest in
land speculation, build and rent, build and sell, flip homes, or buy and hold.
If your goal
as a real estate investor is to continually invest your capital with the hope
of making a 10% to 20% profit on each sale per year, you may have to consider
building a house and renting it out. When you rent out your house, there is a
high probability that you stand a chance of making at least 10% on investment
if development is well supervised to minimize construction wastage and unnecessary spending. If your property is a multi-tenanted building, you may
earn more than 15% per annum of your capital. The build and rent option
surpasses other real estate options if the house is a lucrative rental with
good tenants that causes minimal damages to the house, excellent rental rates,
and payment on time. This means you can eat your cake and have it.
By renting out your house rather than selling it, you save time spent securing another land, getting the necessary government permits, and time spent building the house. To complete a build and sell project, it may take between 3 to 12 months. This depends on the nature of the building and how long the house stays on the market. Repeating this process every year demands a lot of time, focus, and energy. Sometimes the value of your capital may depreciate if there is a delay between construction projects. On the other hand, if the property is rented out, the investor eliminates the extra time spent every year hassling to build a new house, but the cash flow will be certain and predictable. Also, the property will accrue a lot of value if sold after a few years. This means you will not only get back your capital adjusted for inflation but you will also get added value as property appreciation.
For
investors with lots of funds, rental properties are the best investment
strategy. This way you can commit some of your capital to work for you (passive
income) while you continue to build your portfolio. Owning a property for
rental purposes also provides tax benefits to the investor and builds
wealth.
The other
real estate investment options can also bring lots of profits. Buying land for speculation is profitable only if lands are acquired in areas with many prospects. The disadvantage is leaving the lands for several years for
the value to appreciate. This is not very good for investors who cannot afford
to tie down their capital.
Typically
house flipping can earn investors quick profit because they buy distressed
houses, fix them and resell them. Most times flippers buy these houses from
distressed sellers, auctions, banks short sales, or foreclosures without
knowing the true condition of the house. One of the downsides to this
investment is spending more money than anticipated to fix the property. If this
happens, it can erode the profit and sometimes part of the capital. On most occasions,
investors buy these properties at a huge discount and spend very little to
renovate them. In this case, investors have to decide what to do depending on
the present market opportunities if it will be more profitable to sell thehouse for a good profit or to add it to the portfolio for rental income.
Remember that most investors may not like the hassles of tenants, property
maintenance, insurance, and taxes. Other reasons for not holding on to the
house may include the age of the house/maintenance, capital for other
businesses, or no prospect for appreciation.
In
conclusion, investing in real estate has its own unique risk, but with careful
planning and execution, lots of profits can be made from any of the options
mentioned above.
- Difference Between Cost, Expenses, Liabilities, Asset, Income, and Equity
- Take Baby Steps In Real Estate Investment
- When To Sell Your Real Estate Property
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