Monday, March 12, 2018

Four Strategies to Investing in Real Estate


Four Strategies to Investing in Real Estate

Real estate investment is one of the most often utilised investment vehicles. Many new investors turn to real estate investing as a hedge against economic uncertainty. The business of buying, selling and renting property may seem like an ambitious endeavor, but with the right strategies, patience, as well as a willingness to learn, it can be an investment vehicle that drives you forward toward your goal of passive income and financial independence.

Although buying and holding is the most common strategy used in real estate investing, a wide variety of different strategies exist. Some create short-term value, while other create long-term wealth. Keep in mind, however, that the appropriateness of each strategy will depend on your own goals, risk, tolerance and the local property market.

Today’s guide compiles four conventional real estate investing strategies that are worth knowing.

1.       Buy and Hold

Buying and holding is one of oldest strategies to generate long-term returns on investment. Investors purchase a property and leases it to tenants for ongoing income. This creates a steady stream of monthly cash flows and generates long-term passive income for the investor. A buy and hold strategy also offers minimal risk. However, flipping can involve some capital that includes renovation costs and carrying costs.

Keep in mind that for a buy and hold strategy to succeed, the location must be strategic for example, cyberjaya property, and choice of property must be undertaken with due diligence. Besides financial security, you are also able to turn your real estate investment into a business. You will become your own boss, and enjoy many perks including but not limited to tax advantages.

2.       The ‘Lipstick’ Flip

Buying and flipping is an often-used strategy to generate returns on investment in short-term timeframes. Property flipping is the purchasing of property that needs minimal repairs (usually RM 20K or less) and selling (or flipping) the property with minimal cosmetic improvements and repairs. Investors generally buy and flip to make a small, reasonable profit quickly and with little hassle.

To succeed in this buy and flip strategy, analyse potential properties and what the property needs in remodelling. Do a cost-benefit analysis to determine whether or not it makes sense to do certain improvements, and to gauge what you will get in return. For example, a house has stained and dirty flooring. Will the house sell at a higher price with new floors or new carpets? The answer is yes. In most markets, not only will it sell for a higher price, but it will attract more potential buyers and increase the demand for the property. However, do be sure not to budget too high, otherwise you will over-improve the property and it will end up being a waste of money. Sometimes, all the property needs is a lipstick remodel, where there are no benefits to the over improvements and added costs.

The process:
  1. Investor looks for viable homes that can be easily improved for sale.
  2. Investor buys said property and makes minor cosmetic improvements and minimal repairs.
  3. Investor places the improved house is then placed back on the market and quickly resells it for a better price.
  4. Investor cashes out and repeats the process, thus generating returns consistently and exponentially.


Prerequisite needed:
The investor needs to have adequate financing lined up. Investors will also need professional networks and contacts as well has have a good understanding of what they are doing.


Resources needed:
  • Funding for purchase, improvement costs, 6 months of holding costs
  • Contractors to complete basic construction work
  • Motivated seller leads
  • MLS access
  • Flip formula
  • Ability to manage property daily
  • Knowledge of local real estate laws and regulations
  • Accounting skills
  • Minor construction / project management skills
  • Title company


3.       Buy and Hold

Buying and holding is one of oldest strategies to generate long-term returns on investment. Investors purchase a property and leases it to tenants for ongoing income. This creates a steady stream of monthly cash flows and generates long-term passive income for the investor. A buy and hold strategy also offers minimal risk. However, flipping can involve some capital that includes renovation costs and carrying costs.

The process:
  1. Investor find viable property deals.
  2. Investor make repairs to the property to improve its demand and get it ready for tenants.
  3. Investor put the property on the rental market and secures a tenant.
  4. Investor collects rent monthly, generating passive stream of income.


Prerequisite needed:
The investor needs to have contacts to a pool of property sellers in order to have a more diversified selection of properties. The investor needs to have adequate financing to fund the purchase. Otherwise, the purchase will need to be funded with debt (i.e. bank loans and mortgages). Investors will need knowledge and adequate education on property laws, as well as local connections and relationships that will help pull in tenants.

Resources needed:
  • Financing
  • Motivated seller leads
  • MLS access
  • Buy & hold formula
  • LCC/business entity
  • Tenants
  • Title company
  • Funds for repairs and property maintenance
  • Marketing budget for renters
  • Property manager or time to manage property


4.       Wholesale

The wholesale strategy is similar to flipping. However, the investor sells the property contract to other potential buyers. In essence, the investor is the middleman, who contracts with a property seller, markets the property to potential buyers, and then assigns the contract to them. 

Real estate wholesaling is flipping contracts for fast cash. The investor buys at low prices, sells at low prices and sells fast by assigning real estate contract rights. The investors only role is thus to find a buyer for a seller and takes a percentage off of the sale. The profit is usually the difference between the contracted price with the seller and the final amount that is paid by the buyer. This strategy enables investors to get in, get out, get paid fast and can be done quickly and with minimal risk. Wholesaling involves much less capital than other real estate investment strategies.

Success in this strategy will depend on the investor’s knowledge of the real estate market, and connection to buyers for quick sales. A good idea is to add a contingency to the purchase contract in order to allow the wholesaler to back out of the deal if a suitable buyer cannot be found before the expected closing date. This limits the risk involved for the investor.

The process:
  1. Investor finds underprice properties.
  2. Investor finds a buyer for the contract.
  3. Investor assigns the real estate contract to new buyer.
  4.  Investor gets paid an assignment fee.

Prerequisites:
In order for a wholesale strategy to succeed, the investor needs a pool of waiting buyers, education on the land laws and the buying and selling process, as well as a wide network of local connections.

Resources needed.
  •  Buyers list
  •  Motivated seller leads
  •  MLS access
  • Flip & Buy/Hold Formulas
  • LCC/Business entity
  • A few hundred dollars,
  • Internet technology, phone, transportation


5.       Buy, Renovate, Rent, Refinance, and Repeat

The BRRRR strategy is one of the most complex in real estate investing. However, this strategy can be used to provide returns in both the short- and long-term. This strategy involves purchasing, rehabbing, leasing the property, recouping of the capital by refinancing, and doing it all over again.

The goal behind this strategy is to pull out all of the money that was put into the property when it is refinanced, so effectively the property was bought for nothing, and still has a 25 percent built-in equity to reduce risk. In essence, the BRRRR method allows investors to maximise the use of their cash funds and, essentially, acquire assets repeatedly with the original pool of funds.

Some tips for target properties include: aim for properties in gentrifying areas, properties with minor cosmetic repaid needs and properties where values are rising fast.

The process:
  1.      Investor buys a property with good potential.
  2.      Investor renovates the property.
  3.      Investor rents the property out to a tenant.
  4.      Investor refinances the property to get cash out.


Prerequisites needed:
Interested investors will need to have a wide network of property sellers and local connections and relationships. Investors will also need to have adequate financing lined up to fund the whole project, as well as adequate knowledge and education on the real estate market and property laws.

Resources needed:
  •            Motivated seller leads
  •            Flip & Buy / Flip & Hold formulas
  •            LCC/Business entity
  •            Funds for repairs and maintenance
  •            Property Manager and/or time to manage property
  •            Tenants
  •            Financing
  •            Contractors
  •            MLS access
  •            Accounting skills
  •            Title company
  •            Ability to manage property daily
  •            Marketing budget for renters
  •            Knowledge of local real estate laws and regulations
  •            Minor construction/project management skills


6 comments:

  1. thank you bagi info mengenai invest nihh... :)


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    Thanks kak :D

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  3. Good info. Thanks for sharing..

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