A lot of people talk about buying investment property. However, this is not always as simple as it seems. To make any property a lucrative investment, you need to buy the right investment property and you need to manage it correctly.
Here are the top three ways to make your real estate earn extra income for you and your family.
Buy a Rental Property
If you want to see your new property investment making money immediately, you should buy a property that you can easily rent out to someone else.
The benefit of a rental property is that you can sell the property at a higher price than what you purchased it for due to the appreciation of the land beneath it, while, at the same time, you collect an additional rental income. The rental income will help supplement your mortgage repayments on the property- or could even exceed them. In which case, you will receive extra money each month as a landlord.
When buying a property that you intend to rent, however, you must try to choose a property that has market value now. If it does not attract rental tenants straight away, you won’t see any money in the short term meaning you struggle to pay the mortgage repayments.
So when you are looking to buy an investment property to rent, you must consider:
• Is it in a popular location for potential tenants? Eg. Close to universities and schools, close to shopping centers, close to major employment centers etc.
• Is it suitable for expat renters? If so, you can make more from rental opportunities if you market the property correctly to expats.
• Is the property currently livable? You may need to furnish the property, and make the property more attractive for potential renters. Eg. Consider security precautions; consider supplying services such as wi-fi or cable tv.
Obviously, this also means you must have another property where you can live while you rent out your investment property. Alternatively, if the property is suitable, you may be able to live in part of the house, and rent the rest of it to tenants.
Buy a Property to Live in with High Appreciation Potential
This is what most people immediately think when they think of the term “Investment Property.” Invest in real estate that you would live in yourself, and hope that while you stay there, the price of the land will rise enough to cover the mortgage that you took out to initially buy the property. If the property appreciates sufficiently while you stay, you will make money on top of the mortgage and this is your end profit.
This is also an investment suitable for those who don’t want to rent a property. When you rent for a long time, you might feel like you are wasting money by giving it to your landlord. If you buy the property, this money you would have spent on rent is instead going to be spent on the mortgage repayments. When you are ready to move from the house, you have the opportunity to make money on top of any costs of the mortgage.
• This is a much harder game if you don’t have upfront cash to buy the property or subsidize the loan – because the mortgage repayments are going to eat into your investment earnings.
• It also requires a better understanding of the real estate market trends that you are in, as you must find a property that will appreciate reasonably quickly.
• This investment tactic tends to take longer – in that you may need to wait for many years before the property appreciates enough to be worth selling again.
• It also requires economic stability during that period, increasing the risk.
But, if you choose the right property, in an area appreciating fast, this type of investment strategy can work. And meanwhile, you always have a place to live. Here’s what to look for:
• Property and land tends to appreciate naturally as other things develop around it, so when you look for an investment property to live in, try to choose upcoming areas. Places where maybe the level of infrastructure is currently lower – but clearly rising quickly.
• Don’t buy in areas which are already fully developed, unless you get a very competitive price when you buy the property. The appreciation in these areas is likely to be slower.
• Look to see where other people are choosing for investment and speak with real estate agents.
• Always research the market before buying a live-in investment property.
A note regarding Land Investment: If you want to simply invest in land – you must invest at or below market value. If you spend too much on a land investment, your risk that it won’t increase in value is high, and meanwhile, you get no benefit from the property what so ever.
Buy a property, Increase its Value, and Flip It
Potentially the fastest way to make a return on your investment is to buy a property that you will be able to improve through renovations and then sell for more than what you originally bought it for. Yet, no money is easy money – and some investors do not consider the true costs and skills necessary to buy, fix and flip property.
One way to do this is to invest in a ‘property with potential’:
• A property with potential is one which is currently underdeveloped but has potential to be a very attractive property with a little work and money.
• Yet, again, location is everything when it comes to re-selling property. So not everyone has money to buy in the right area and then spend money developing the property.
• Remember - Always get a professional valuation before you purchase any property, and this will help you find out how you can realistically increase the properties market value.
• Once you have developed the property, re-value it and see where its market value has moved to.
There is no doubt that this option requires significant upfront capital – cash now. But if you have it, buy more and get a discount:
• Developers and other property investors with various properties will often give a much better price if you are willing to buy a number of properties.
• The money you save with this bulk discount can be used to improve the property for resale.
• You could consider buying a whole floor of a condominium building, for instance, then live in one unit while you rent out the others, or renovate the others for resale yourself.
• Then, sell all of the units at a higher price when the land beneath the condo appreciates.