The real estate investing business has been gaining much popularity over the recent years. We’re well aware that the main reason one considers property investment, apart from relocating, is the opportunity to earn a much-needed, and always welcome, additional income. Real estate can provide profitable yields and several sources of income.
Why become a Real Estate Investor?
Passive income refers to income from rented properties. It is one of the main reasons one chooses to be a real estate investor. Renting out a property leads to an added monthly income.
Refers to an increase in property value, overtime. A source of increased income can help in other property and business investments.
During a period of inflation, there is an influx of renters since purchasing a property is not an ideal option. Inflation leads to a greater demand for rental property, and hence, an increase in the rental prices. Since the mortgage rates on the property remains the same during an inflation, the property expenses incurred remain stable, too. Thus, an inflation leads to increased rental income and cash flow.
Using leverage, after taking into consideration the risks involved, to purchase property that would yield more rental cash increases the purchasing power of the buyer. This means, the buyer can purchase more properties with down payments, rather than for cash, thus increasing the rate of returns.
Real Estate Investments & Low-risk Strategies
As someone who is new to the real estate investing market, make sure to adopt lower risk strategies, such as:
Lease options is a friendly, low-risk strategy that allows an investor to purchase property with close to no down payments and with certain flexibility in time duration, to arrange for financing.
This is a no-risk strategy. While wholesaling, an investor looks for sellers who are willing to sell their property for a lesser rate than the established market value in order to finalize a sale, for various reasons, as soon as possible. The contract thus gets whole-saled to the buyer who is willing to pay a higher price than what the investor paid, but lower than the current market value.
The rehabbing strategy refers to the purchase of property that is in need of refurbishment and repair. Investors then work on making the purchase price along with the cost of the repairs far below the increased price of the property, had it have been sold post repairs. In order to make the rehabbing strategy a success, buyers should make sure they hire a professional for the refurbishment of the property.
Properties such as duplex apartments, condos and apartments with vast areas, are purchased by buyers for the sole purpose of additional cash flow.
In the recent times, businesses are expanding as quick as lightening. This means there is an increased requirement for commercial properties, which is why, commercial property rentals are much higher than apartment rentals. Thus, commercial real estate is a more profitable option in comparison to the residential properties. as it comes with a higher rental value.
Foreclosure properties are reclaimed properties that are taken back by the lender or the bank since the mortgage or the loan on that property has gone beyond due date. There are various ways and methods to purchase a foreclosure property as a real estate investment:
- Buying the property out from a seller who is facing a foreclosure.
- Buying the property during an auction since auctioned properties are generally sold far below market value. In case the property fails to sell at an auction, it goes to the lender who then sells the foreclosure to an investor.
Real estate investment can be a great way to increase income and cash flow. But there are a few risks an investor should be aware of with respect to the functioning of the market. Bear in mind the following points while selecting a property worth investing in:
- As an aspiring investor, one must make certain they have ample time to devote to managing the property. Evaluation, of the property and the location, is important to determine the suitability of the property for the intended purpose. It is also important to determine if the property is financially viable or not.
- Understand how a purchase can be converted into positive cash flow by assessing the benefits of the investment.
- Understand the leverage and risks involved. Leverage refers to using financial instruments to help increase the return on investment (ROI). This could refer to borrowed capital from a lender, or mortgages. The purchase of property with minimum or no down payment is a fast way to attain a faster return on investment. However, as an investor, make sure to be well-versed with the risks, too.
Yes, appreciation is a huge benefit of property investment, and also one of the main reasons people consider becoming investors, but the ever-changing markets and the uncertainty of the real estate business should be weighed as well.
While it is instant cash, there are a lot of unseen risks involved. Which is why, at Gupta & Sen, our only advise (and request) to our clients is: Make an investment, but with Caution. While we make sure to guide them through every step of the way, ultimately, the decision is theirs. Hence, we can never stress enough on the fact that, selecting a trust-worthy agent to guide you through the process of buying (or even selling) is your boon to the satisfaction of a well-evaluated investment. Whether buying with the intention of relocating, or that of renting, make sure to choose agents who can help you make a hassle-free decision, so you, the investor, can rent out your property and receive the much-needed added income in this world of growing expenses.