In the current economic climate there is almost no point in putting your money into many traditional savings accounts that will earn 1% APR or less. Since Coronavirus hit, the entire global economy has seen a downturn like none we’ve seen before.
Right now, it’s hard to know how this is going to affect the real-estate market. What we do know however, is that real estate will always be valuable, and the price of property always bounces back.
Of course though there’s still an element of risk, as there is with any kind of investment. Here then we will look at a few tips for investing in property to try and help you avoid mistakes and makes sure that you rake in the profits.
How to Profit From Real Estate
The first question is how you are going to profit from real estate. To that end, there are a few different options available to you.
The first is to buy the property with the intention of selling it. You can renovate the property, decorate, add value, and then sell for a profit. This is called “flipping” and it is often extremely effective.
The other popular option is to rent out the property. You can do this in a number of ways. For instance, you might become a landlord and deal with tenants on a long-term basis, or you might consider putting your property on AirBnB. If your property is on AirBnB, then you will need to list it on the site, while also making sure to keep it tidy and clean the rest of the time. Remember that vacation rentals tend to be more popular at certain times of year, meaning that your property may be empty for months on end.
Either think about ways to mitigate this, or look into costs associated with maintaining the property (or paying the mortgage) and whether this will ultimately be profitable for you.
Being a landlord can offer a more stable form of income, though you do need to consider the other work and costs involved. For instance, it will be your job to fix the boiler when it breaks, and you’ll need to deal with damages and bills too.
To that end, you might prefer to use a property management company. They will act as a go-between to help you to deal with these issues, but they will of course take a cut as well.
Tips for Making Money From Real Estate
Choose the Right Property to Sell
Choosing the right property is of course the single biggest way to make your money grow and to maximize your profits. The price of properties will almost always rise eventually which is why this is such a safe way to invest, but the amount by which this value increases, and the speed with which it does, comes down to your choice of property.
When you buy stocks and shares you don’t just want shares that will be worth a lot of money in the future, you want shares that will be worth a lot more money in the near future. You need to stop buying property like a resident, and start thinking like a businessman/woman.
The best homes for selling are not necessarily the nicest properties. These will be the homes that are 'up and coming' and that generally can improve a lot over a short period of time. So for instance if you buy a property that is in a run down area that is going through development or where the council is spending a lot of money this can be a great investment as the home will become more appealing over time. Look out for new developments and do some research into where the best properties are to invest in in your area. Likewise, consider other factors that might increase the value of an area/property: things such as new transport links, or like new shopping outlets in the area.
Again, it’s not about what the area is like now but what the area will be like soon.
Likewise, you want to buy properties where you personally are able to add a lot of value. You can add value to a home in a lot of ways. For instance, by adding new flooring, by installing new doors and windows, by getting tiles placed outside, by adding rooms, by converting lofts and garages etc. All of this will enable you to make your property worth more than it was when you bought it and in turn this will mean that you earn more from it.
Think about your personal contacts and skills in particular. If your Dad works in double glazing, then that’s a very good deal! You can add a lot of value to a property by adding double glazing – in fact some research suggests that double glazing can add up to 10% to the value of a home!
Let that sink in for a moment. If you can get your relative to add double glazing to your property, then you can take a $400,000 house and sell it for $440,000! That’s a HUGE potential earning for doing very little.
This is what we call a “fixer-upper” and this will have a lot more potential for increasing the value and making a lot of money that you can then put straight in the bank and invest into more properties. If you have a team of skilled individuals, this can very quickly become a small business.
Haggling
Another thing that can help you to get a good price initially is to haggle. Look for signs of wear and tear and then use these as leverage to try and bring the price down. Make sure that when you're buying you aren't in any hurry - the person who has the most urgency will generally be the one who loses the negotiations.
Popularity
When choosing your property you need to think not only about how much it is 'technically' worth, but also about how much you'll realistically be able to sell it for. Like selling any product, you should make sure that there is a market out there for your property and that means ensuring it's desirable, affordable for the area and practical. Things like close proximity to shops and extra features like balconies and hot tubs may be what makes your property sell, while an awkwardly shaped living room that makes decorating difficult might be what prevents it from shifting as rapidly as it should.
Choose the Right Property to Lease
Choosing the right property to lease is a slightly different story again. This time, you will be investing in the property with an eye to renting it out to people, in which case it does need to be desirable now.
(Though with that said, if you can buy it cheaply and then fix it up to look nicer, then you can breakeven more quickly.)
What you should also think about though, is just what kinds of properties are desirable as vacation rentals, or as properties to rent.
For example, if you can find a property that is within the commuter belt for a big city, then this will naturally appeal to potential young professionals.
Likewise, properties that are near to landmarks or to tourist attractions will work particularly well as properties that you can lease through AirBnB or on other websites.
The good news is that properties that are popular to rent, are not always the same ones that are popular to buy. That means you may be able to get a great deal on a property and then lease it for a high value!
Get a Good Loan
The whole point of investing in your property is to make as much money as possible, so you need to make sure that you aren’t wasting cash for instance on an unnecessarily high APR. Shop around and improve your credit rating and you can get a cheaper loan meaning lower overheads and more profit.
How about a loan from the bank of Mum and Dad? This can potentially help you to afford far more valuable properties without needing to take out an expensive loan. It’s a fantastic strategy, and especially if you repay them with interest. Don’t be afraid to ask for help – relying a little on the community that raised you and wants to see you succeed is just good sense.
At the very least, consider using your parents to take out guarantor loans in order to get the best deals. And fix your credit score while you’re at it!
Likewise, you also need to be careful when investing profit that you aren’t swindled by buying a dilapidated building or not getting all of the rights to the property when you sign. By investing in a good settlement agent, surveyor, estate agent etc. you can save yourself a lot of money and avoid problems. It’s easy to get swept up in the excitement of buying a new property and to thereby end up with a sub-par deal!
Some Things to Look Out For
Mold
A bit of mold might not seem like a big issue, but it is indicative of a far more serious problem. If you’re struggling with mold, then it probably means that your property has an issue with damp, which will mean the mold only spreads and gets worse with time. This then leads to damage to your property as the mold spreads, it makes leaks more likely and it can even damage your health. It’s crucial to tackle damp and mold with waterproofing and smart living and if you notice any setting in you should ensure you get to the bottom of the issue rather than just tackling the symptoms.
Flooding
Flooding is an incredibly destructive problem that can quickly lay waste to much of your property as well as your belongings. From waterlogging the garden, to damaging your flooring, to destroying your furniture and electronics, there are any number of ways that a flood can ruin your home. The problem is that you can’t do much about flooding once it’s an issue, so make sure to look out for flood-plains and use a surveyor to avoid making a bad investment.
Weak Foundations
Cracks in your walls don’t necessarily spell doom and may be easy to repair, but once the damage becomes extensive and effects the foundations of your building it can lead to incredibly costly damage that makes the property a poor proposition for investors. Again, look out for signs of serious damage when choosing your home and make sure to maintain the building as you go along rather than waiting until it’s too late.
Strategy
As with any business model, the right strategy can make a huge difference to your likelihood of success. Again, the key is to think of this like a business person.
For example, if you want to earn money from a property but you don’t have a lot of cash to invest in multiple locations, why not consider staying with your parents to flip your first home? You could even stay with friends!
Likewise, you could consider investing in a property with friends. If you team up to buy a property, you could potentially invest $20,000 each and maybe even avoid needing to go to a lender at all (say there’s ten of you). Leverage each of your individual skills, and you could turn a small flat into somewhere far more desirable and then split the profits!
If you buy a property to use as a vacation rental, why not find ways to make it more desirable? How about decorating your property in a historical manner for instance? Now the property itself becomes the appealing sight!
Finally, keep in mind that there are plenty of ways to invest in real estate without ever buying a property! These include using Real Estate Investment Trusts (REITs), Real Estate Mutual Funds, and more. There are even now online real estate investment platforms!
Speak to your bank if that sounds more appealing.
