Real estate investment is undoubtedly one of the best ways to make profits, as it is a low-risk investment with such a high return and growth prospects. Over the last few decades, real estate has been a popular investment product.
1. Rental Properties
Once you purchase a rental property, you will be responsible for paying the mortgage, insurance, property taxes, as well as property maintenance.
Additional tasks that fall under your remit will include choosing tenants and dealing with any issues that crop up. You may have to employ a property manager to administer these tasks if needed.
2. Flipping Properties
Flipping properties has two methods:
- Repair and modernize: purchase a home that will appreciate after a few repairs and renovations, yielding a profit once you resell.
- Resell after a while: buy during a bullish market, wait for several months, and then sell to make a profit.
3. Groups of Real Estate Investors
These groups are similar to the mutual funds that invest in rental units. A company will buy or construct buildings and then sell them to investors, though it will be responsible for the upkeep, advertising, and acquiring tenants. In return, they receive a percentage of the monthly rent from the investors.
After deciding on the choice of investment, an investor can determine the value of the property through various methods.
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Real Estate Valuation Methods
1. Sales Comparison Strategy
In this case, the appraiser looks at adjacent comparable properties. When an identical home is just sold next door, it gives an easy indication of the value of the concerned property.
2. Cost-Benefit Analysis
Here, the appraiser considers the existing state of the property. He utilizes a method known as depreciation to calculate how much less the present home is worth when compared to an exactly similar brand-new home.
3. Income Capitalization Method
Appraisers utilize this method of estimating the value of income-producing properties. This valuation method connects the property’s price to the monthly rent it can expect and its resale value.
4 Ways to Fund the Purchase of the Property
1. Home’s Equity Loans
If you do not have enough money to make your second real estate investment, you can take out a Home Equity Loan. Most investors take advantage of the equity in their primary residence and utilize it to purchase a new property.
2. USDA Loans
In an attempt to fill underpopulated areas in the United States, the Rural Development office of the United States Department of Agriculture offers USDA home loans. These mortgages can come with a zero percent down payment under appropriate conditions.
3. Investing in Real Estate Investment Trusts
Real Estate Investment Trusts, or REITs, are companies that invest in income-generating real estate. Most REITs are traded on the stock exchange, making them highly liquid.
4. Hard Money Lenders
If you do not have enough capital to invest, the investment will originate from groups or private individuals rather than from a bank. The turnaround time is shorter. Furthermore, private lenders are more likely to support higher-risk, higher-reward ventures.
In conclusion, If you decide to buy rental properties or start flipping houses, be sure you understand the risks involved and have a backup plan to recover your investment.