Property Flip
This type of strategy has always been around but gained a noticeabley increased following in the past decade. The development of "innovative" mortgage programs combined with a booming real estate market and televison programs encouraging investors on how "easy" it is to make a quick buck in a matter of months. With recent times and recent market troubles the number of flipper opportunities have also taken quite a beating. With fear and unaffordability haunting the marketplace demand for homes have dropped dramatically making a wide range of property flips much more difficult to make successful.
What is meant by a property flip? A simple explanation is the investor buys a property, usually under market value. S/he then remodels, fixes, or reconstructs the property and upon completion puts it back on the market to sell for a profit. This method of investment works very well in markets with high demand and where bargain properties can still be found. Remember that even in markets where demand is not high, property flips can still be successful. The most important aspects of a successful flip is finding the right property at the right price because ultimately you will find a buyer, just be sure that your wallet can wait for the right buyer.
Bargain Properties
This concept is quite simple and has been around for ages in most every industry : the cheaper you can buy something the more money you can make when you sell it. There are a variety of ways to find bargain properties, some of which are easy and others which will require some extensive research, footwork, and even strong people relations skills :
Bankrupt or Financially Distressed Borrowers
Lender Auctions or REO Auctions
Builder Leftover or Distressed Builder Auctions or Properties
Corporations Parting with their Real Estate
Delinquent Property Tax Sales
Short Sales
Foreclosure Auctions
Drug Property Seizures by Government
Temporarily Depressed Real Estate Markets
Rights of Redemption of Distressed Borrowers
IRS Sales
HUD Auctions
Probates
Fixer Uppers
For-Sale-by-Owner Properties
Bargains can be found from anywhere from 20% to 80% of property value.
Long-Term Appreciation
Do you ever remember thinking to yourself, "If only I bought that place 5 years ago when I wanted to..."? Rest easy knowing that most every person who has gone through the latest real estate boom has said that exact same thing, I know I have. And why? Because of the climbing appreciation we were seeing. Not too long ago you could buy a property and sell it a couple months later the properrty would appreciate enough to produce a significant profit -- it was amazing!
Real estate is still known mostly as being focused on long-term investments. Much of the long-term investment strategies are based solely or at least partially on the long-term appreciation you gain on your property with time. Generally the longer you hold onto a property, the higher its value will appreciate. Of course this is assuming that the location of the property is acceptable and the city and region's economy remains stable as well throughout the years.
Cash Flow
Another reason for holding onto real estate long-term is the passive income, or cash flow, the owner receives every month. Income generated by rents, vending machines and washers on location, are all considered passive income for the owner. Imagine having enough income properties that cash flow enough for you to retire and to rest assured that you will still have monthly income in addition to your savings and other investment funds.
TIP : If you are just starting your real estate investment portfolio you may consider buying a smaller income property that you can occupy yourself, as a home. Such properties may include : duplexes (2 units), triplexes (3 units), and four-plexes (4 units).
There are several advantages doing so : One, you will be on-site and will be able to easily and promptly take care of any and all problems that may arise. Doing so is one of the keys in making sure your tenants are satisfied with their units, ensuring that you will continue to receive rent on time and maintain long-term tenants. Two, because you will essentially be property manager you will gain invaluable experience with owning investment properties. This will give you the knowledge you will need in the present and future to maintain and expand your real estate investment portfolio. Three, as long as you are buying a property with four units or less you can still qualify for owner occupied financing. This type of financing has lower interest rates in comparison to the interest rates provided for larger investment properties.
Speculative Appreciation
This is by far one of the riskiest methods of investing. Risky in that there is no true way of knowing whether or not this short-term method of real estate investing will end well. This type of investing is known as speculative appreciation for exactly what it sounds like -- the investor is buying properties based on their unresearched prediction that the property will appreciate.
In the past few years this type of speculative purchasing has become rampant. Investors began to buy properties everywhere without doing any research because the real estate market was so hot/. There was such a high demand for homes that it seemed that a home anywhere would appreciate, and for the most part it did. But now that the market has corrected itself and continues to do so, this type of investing has become riskier than ever.
