Investment Property- An Introduction
Diversifying Your Portfolio With Real Estate Investment
Jul 29, 2009
There are several different ways to enter into the real estate investment world, each with their own sets of risks and rewards. Depending on several factors which will be discussed below, investors may find opportunity in residential investment properties, commercial investment properties, reselling (or flipping) properties, and speculation.
Basics of Real Estate Investing
Real estate investment can be a highly rewarding activity, but it is not without risks. Buyers need to be aware of a few basics when considering investment properties. Market conditions, financing options and costs, best use of the investment property, necessary renovations, tax liabilities, insurance costs, locating good tenants, and local laws and regulations – just to name a few. Many excellent overviews of the business of real estate are available online. If a buyer is not versed in these subjects, it is highly recommended that the time and effort is spent to become so.
One great piece of advice – buyers will not make enough money to retire on one investment property deal. If an opportunity is presented in that way – be cautious! Real estate investment, like other forms of investment, makes money over time.
Real Estate Investing in Residential, Rental, and Commercial Investment Properties
Many real estate investors get their start with a simple rental investment property. Be it a single family home, multi-family home, or small commercial investment property, this is the bread and butter of many investment portfolios.
The landlord must make sure that the investment property is maintained, adequately insured, and that all state and federal laws and regulations are met. This is especially critical as many of these laws, if not followed, carry extremely severe punishments. Investment properties to be rented can come from several places: Auctions, foreclosures, inheritance, or simply from standard practices. Do not underestimate “For Sale by Owner” properties – they can be an excellent source for investment properties.
As with all investments, there are risks. Landlords must make sure to find good tenants for their investment properties. Rents must be paid on time and the property must be well maintained. With all property purchases, there is always a risk that the value of the property will decrease over time. This can be due to many things, from a change in the local economy (for example, a factory shuts down and available jobs decrease) to government influence (tax rates are increased).
Flipping or Reselling Residential Investment Properties and Speculation
“Flipping” is the process of buying a home in poor condition, and quickly renovating and improving the property for resale. This process has the potential to be quite lucrative, but the risks are greater as well. An investment property in disrepair can often be bought at far below market price and sold for a profit even after paying for the repair costs up-front.
Investors who “flip” real estate must be cautious and take great pains to understand the market they are operating in, as well develop strong relationships with contractors and home repair companies. Many a buyer has sunk a large amount into renovating an investment property only to have it sit on the market for months. Remember – if its not sold or rented out, its costing the investor money.
Speculating is the process of buying an investment property – be it residential , commercial, industrial or undeveloped – with the expectation of selling that property for a profit in the future. Perhaps a buyer believes that city expansion will bring business to a certain location, so property is purchased and held until the value rises. This can also be risky as there are no guarantees, and to hold a property – even undeveloped property – costs money on an ongoing basis. Property taxes must always be paid.
Real estate property investment carries risks. It also brings opportunities for rewards, both immediate and ongoing. Rental properties, commercial investment properties, flipping houses and speculation are all valid areas to invest. As always, it pays to research and understand the market before making any decisions that could end up costing a fortune!
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