Financial experts often recommend including real estate as part of an investment portfolio that can increase your net worth. However, choosing the right properties and understanding the ups and downs of the real estate market is crucial to making a profit in this field. Investors can choose a variety of strategies to make the most of the gains on their purchase.
Making Decisions on Property Sales
Property investing requires as much research and planning as other types of investments. Often, your contacts in the industry can help you to find the right properties that promise to yield a good return. Information on the Internet can be helpful, but it cannot substitute for in-depth information in the local real estate market. Learning as much as possible about these local conditions can help you to determine which strategy will be most advantageous for achieving a profitable return on your investment. Three basic strategies are generally used in disposing of property purchased for investment. You can purchase and hold the property, renting it out to other parties. You can immediately resell the property. Finally, you can fix and “flip” the house, selling the improved property for a significant profit. Each strategy has both advantages and disadvantages.
Buy and Hold
In the buy-and-hold strategy, the investor active looks for properties that will achieve a good return over the long term. These properties should appeal to a broad range of tenants and be in desirable areas near schools, shopping and transportation. You can find many suitable properties online at websites, such as geeringandcolyer.co.uk. Advantages of this strategy include a steady income if you are able to garner rent that is above your mortgage, maintenance costs, depreciation for tax purposes and increasing equity to improve your net worth. The negatives of this strategy include having to deal with tenants, costs for a management company and ongoing maintenance costs.
Wholesaling property is another strategy that can achieve good returns on investment. In this method, you find the property for an investor and turn it over to them for a fee. Some advantages of this strategy include low initial investment because you do not plan to close on it yourself, no dealing with tenants and not having to oversee contractors' repairs on the property. Disadvantages include problems finding credible buyers, the costs of marketing to find these buyers and having to pay taxes on the income from your fee. The wholesale turnaround strategy can work in areas of the country that are seeing significant population growth. However, it is not always a practical method for most locations.
Fix and Flip
Flipping houses became a popular trend during the economic downturn, when real estate that had been abandoned and left to deteriorate could be had for a minimal amount. The advantages include selling them for a much higher price in a recovering real estate market, satisfaction in realizing the potential of the house and not having to deal with tenants. However, the details can be complex. Finding homes that are suitable for flipping in desirable neighborhoods that would garner sufficient profit can be difficult. Flippers who have contacts inside the real estate industry often purchase these homes quickly. The homes that are left may be in less desirable areas or needed significant repair before being put on the market. Finding reliable contractors and being able to work with these companies requires a significant investment of time and energy. Local real estate markets were another factor that could be a drag on the fast sale of the property, which can eat into your potential profit. Flipping houses is a strategy that requires careful attention to tax considerations, which can quickly eat into any gains. Many flippers rely on tax advantages that only apply to individuals who actually live in the property, which will not count toward the flipped sale.
Consulting Your Investment Team
Decisions on the purchase and sale of real estate should always be made after consultation with your accountant. Certain tax considerations may apply that can cost you money or save you money. In addition, timing can also be a factor on your tax liability. Some properties may have legal entanglements that require the advice of a property attorney, and this expense must be factored into the overall gains of the resale strategy. Having these professionals on hand to provide advise can help to maximize your profit.
Determining the right way to dispose of a property to maximize profits depends on many different factors. If you stay alert to market conditions, you can make the best decision for your needs.
Erin Sanderson is part of a team that manages a property portfolio and she enjoys sharing her insights with an online audience. Erin can often be found writing about all things property on a number of different websites.
Join the free Master Your Money course!
Join the free email course and finally learn how to manage your money better, pay off debt, save more money, and reach financial freedom.