Real Estate Investment Strategies That Create Profit

April 21, 2009 by  
Filed under Real Estate Investing

In 2004, studies showed that 23% of all homes bought in the market were done so as investment properties. Historical returns on real estate investments can be mind-boggling, even in the midst of a down economy. If you are a novice investor, you should take your time and do your homework. However, here we’ll discuss a few common ways to profit from this type of investment.

Flipping property has become extremely popular in recent years, and virtually every television station features a special show that features these deals. This involves purchasing a property and selling it quickly for a profit. Although you can make a lot of money flipping real estate, the short turnaround time eliminates the possibility of additional tax deductions and appreciation.

When scheduling your budget for a property to be flipped, consider not only improvements and repairs, but these costs compared to tax savings if the property is held for a year or more. Interest charges, property taxes and insurance should also be included with the normal home loan mortgage payment.

There is risk of home values falling, but they will always bounce back with a long enough time period. Flipping also allows for purchasing undervalued or foreclosed properties in down markets, and selling at a discounted rate that still produces large profits. Remember that down markets are buyers’ markets, so real estate will still sell during these times.

Another option to creating real estate income is to rent a property you have invested in. Although this will decrease or eliminate your personal obligations for cost of upkeep and mortgage loans, you’ll need to account for costs in advertising and finding a tenant as well as managing the property.

Buying devalued or foreclosed homes can mean that you buy a house for quite cheap, but most require some if not a lot of major repairs. You’ll need to ensure you can finance these repairs and find a responsible contractor if you won’t be performing them yourself.

Always consider that a homeowner about to be kicked out of his home probably won’t take very good care of it. You can make a lot of money buying and selling foreclosures, but you have to be ready and willing to put a ton of time and effort into it.

Abandoned and tax sale homes create similar opportunities, but there are several legal angles you’ll need to be aware of before jumping in on one. Some states won’t even allow you to occupy the property after purchasing at auction; you’ll need to allow the former owner time to repay your investment with interest, sometimes up to a year or more.

Always remember that you can still invest in real estate and avoid mortgage bankers, financing, insurance and real estate agents, outlay in cash for repairs and sweat equity by investing in paper real estate. REITs, or mortgage-backed securities are formed in a variety of ways, and provide an option to own part of the real estate without needing to lift a finger. Always consult an investment professional to find the correct options to fit your needs and lower risk.