Quick Start to Real Estate Investing
Have you been contemplating getting started in real estate investing? Real estate can be a solid investment that produces a better ROI (return on investment) then other more traditional investment vehicles.
If you are just starting out there are two ways to get involved in real estate investing: (1) purchase a rental property or (2) fix and flip.
Purchasing and Renting
It has been proven that holding onto a property long term will allow you to see an appreciation in value over the years. For this reason alone it is wise to buy real estate to hold onto, but if you rent the property while you are holding it you gain immediate ROI through rental income.
Advantages
- Rental properties will bring in monthly income for you. If you set the rent correctly it should cover all of the home expenses (mortgage, insurance, taxes, and other costs), while still leaving you extra in the end.
- The property is appreciating as you hold on to it.
- You don’t have constant transaction costs from flipping houses.
Disadvantages
- Renting can be a big risk. You could end up with nightmare tenants that require you to spend unexpected money on repairs or legal fees when they leave.
- Rentals also keep your money invested in them long-term, which means you aren’t able to make additional investments at the same time as easily.
- You are responsible for acting as the landlord and handy man, or hiring a property management company.
Fixing and Flipping
The concept of this show has been shown time and again on popular TV shows following individuals who do this for a living. The concept is, you purchase a house for a good deal that requires work. You fix up the property and then you sell it for a profit. The entire process should move as quickly as possible so you don’t lose a lot of money on the carrying costs.
Advantages
- Investors are not required to deal with ongoing tenants.
- The process is usually a quick one.
- You can see a large ROI quickly.
Disadvantages
- Any remodeling project can (and usually will) face unexpected circumstances. It could be small, like needing to replace the front door, or large, like needing to run new plumbing throughout the house.
- Ongoing Transactions Costs – There are many costs involved with flipping. You have the fees from purchasing the house, the contractor fees, and the fees involved with selling the house.
Real estate is an investment that can make you a lot of money. It is also one that some investors enjoy since it is more hands on than sitting on stock. It allows the investor to play a bigger role in the amount of money they can earn instead of sitting and waiting for the interest to accumulate.
However, the investment is not for everyone. Carefully weigh the pros and cons of real estate investing as a whole before contemplating which option is the best for you. If you want quick and constant transactions, consider fixing and flipping. If you want a stable and steady stream of smaller amounts coming in over time, consider a rental property.