Several real estate investing strategies exist, but not all generate profits, nor are they suited for every investor. To succeed in this market, investors should engage in thorough research to understand the pros and cons of each available strategy.
The most popular real estate investing strategies include residential homes, commercial real estate, and probate properties. Each type of property can be used in various ways. How investors generate a return on investment will depend on how much time they want to spend maintaining the property.
Residential homes can be used as vacation rentals, long term rentals, or combined with owner will carry financing. Vacation properties require more hands-on care than residential rentals. Investors will need to fully furnish vacation homes, maintain utilities, and thoroughly clean after each use.
Long term rentals don’t require as much maintenance, but property owners can incur expensive legal fees if tenants default on their lease or cause property damage. Nearly every landlord has experienced bad tenants and endured the time-consuming and costly process of eviction. On the other hand, conducting proper due diligence can minimize risks. At minimum, investors should obtain a current credit report, background check, and list of referrals.
One investment niche that is beginning to explode is that of offering seller-financing. Thousands of people have lost their home to foreclosure and cannot qualify for bank financing. Those who can qualify for a mortgage loan aren’t willing to pay full market value because the market is saturated with discount-priced foreclosure and bank owned homes.
Offering seller-financing can be beneficial to all parties involved. Sellers can obtain fair market value for their home by selling under a lease purchase option agreement or seller carry back trust deed. During the contract period, buyers tend to better care of the property because they are working towards purchasing it.
Owner will carry contracts usually extend for 1 to 3 years while buyers restore credit ratings. When the contract expires, buyers obtain a bank loan to purchase the property. If buyers cannot qualify for financing, sellers can extend contract terms or lease the home to other tenants. When buyers default on owner-financed contracts, sellers retain all funds contributed toward the purchase.
Several real estate investing strategies exist with commercial properties. This type of real estate is generally more expensive to buy and maintain than residential homes. Investors usually partner with other investors to offset costs and maintenance duties.
Some of the more popular commercial investments include apartment and condominium buildings, retail shops, and office buildings. Investors will need to carefully calculate the true cost of commercial real estate. Most require a dedicated staff to maintain the premises, collect rent, and attract new tenants.
Investors who do not want to manage commercial properties may want to consider investing in real estate investment trusts. Commercial REIT stock offers the potential for long-term capital gains and can be a good tool for portfolio diversification.
Lesser known, but potentially profitable real estate investing strategies are those involving probate properties. This type of real estate is held in probated estates. When estates are incapable of paying decedents’ outstanding debts or mortgage payments secured by the property, the real estate can be sold to eliminate financial burdens.
This investment niche requires investors to have a good understanding of state probate laws and the ability to scout out potential properties by searching public records. One of the easiest ways to learn how to buy probate homes is to network with other investors who specialize in this niche.
Although the real estate market is still downturned, there are plenty of opportunities for investors to generate profits. Calculating the pros and cons of each type of investment can help investors decide which real estate investing strategies to incorporate into their long-term plan.