Investing in realestate can be profitable and rewarding. Before diving in to the investment game, it is important to become educated about the various types of properties and risks associated with each. Additionally, investors should develop a strategic plan prior to purchasing their first property.
Two primary realestate investment options exist. The first involves purchasing properties outright, while the second involves purchasing shares of real estate investment trusts (REIT). This article focuses on buying real estate outright and summarizes the various types of properties and how to earn profits from each.
With the exception of REIT shares, all realestate falls into the category of either residential or commercial properties. Residential realty includes single family dwellings, individual condo units, mobile and manufactured houses.
Commercial properties include apartments and condominium buildings, retail outlets, shopping malls, restaurants, and office complexes. Vacant land can fall into either category based on local zoning laws for use of the land.
Vacant land can be an exceptionally lucrative realestate investment. Raw land can be used for erecting commercial office buildings, shopping malls, or developing residential communities, as well as ranching and farming purposes. Vacant land located in rapid-growth areas can quickly increase in value.
Residential realestate is the most popular type of investment property. The majority of real estate investors begin by purchasing a single dwelling home to be used as rental property or for house flipping.
Rental realestate can offer a decent return on investment, but it can take ten years or longer to turn a profit. In the interim, investors are stuck with the headaches of being a landlord or the expense of hiring a property management group to oversee the property.
One option to overcoming these duties or expenses is to offer the realestate under a lease-to-own contract. Buyers provide a down payment and reside in the home as a tenant. A percentage of the rental income is contributed toward the purchase of the home. Lease-to-own contracts typically last two or three years; allowing the buyer time to develop sufficient credit to obtain a conventional home mortgage loan.
Lease-to-own contracts can allow investors to quickly generate profit from their realestate investment. Legal contracts should be drafted by a real estate attorney. Investors must submit specific documents to the IRS when engaging in rent-to-own properties.
Another well-liked realestate investment is flipping houses. House flipping requires the ability to spot a good investment property and purchase it below market value. Most realestate purchased for flipping require repairs and renovations. Investors should have access to a team of qualified experts who can make repairs quickly and efficiently. After repairs are made, investors must be able to sell the property quickly in order to turn fast profits.
The goal of rehabbing distressed properties is to buy, fix and sell within 60 to 90 days. This can be a lofty goal for unseasoned realestate investors.
Rental properties and flipping houses are just a few investment opportunities. Commercial investments are typically more profitable than residential realestate, but carry considerably higher risks.
Taking time to understand the pros and cons, legal liabilities, and property types can help investors develop solid strategies that generate steady cash flow. Going in blind can cost investors time and money and place them at risk for lawsuits or bankruptcy.