If you’ve kept up with my blog over the past few weeks, you have been exposed to a magnitude of different information regarding personal finance. In a previous post, Passive Investing, I mentioned real estate investing briefly. Today, we’ll cover some different routes people use to make money through purchasing property. Also, on a side note, I may be biased when I say real estate is the end game for investors, because it has always caught my interest as my favorite way to invest.
The first route, which has the longest investment outlook, is buying and renting houses. This isn’t a simple process, as finding a property which makes sense financially isn’t something you just happen upon. It takes in depth research and understanding of markets to purchase a house that cash flows. The goal of this method is to purchase a property where you can earn enough cash through rent every month to cover all of the monthly expenses. Most properties do not provide this, so it’s important to detach your personal feelings from your investments and realize when a deal simply isn’t viable. I find the method of buying and renting fantastic because you are able to generate passive income, increase net worth, and own property down the line which you didn’t actually have to pay for. Plus, this method is scale-able and can be done repeatedly until you feel satisfied with your investments.
The second route, which has an extremely short outlook, is buying and flipping houses. Similar to the first route, this isn’t as easy as it seems but the payoff can be huge! The premise of buying and flipping begins with purchasing a property that is drastically under value or in need of a lot of work. Foreclosures provide the perfect example of a house which can probably be flipped for great ROI. Once you purchase the house, the goal is to renovate the property into something livable while adding value along the way. Established “flippers” commonly complete their renovations around 6-24 months of the initial purchase. Once renovations are complete, the house can be listed on the market for a much higher cost than the purchase price, resulting in profit. It is important to note that the profit should also cover the cost of all renovating costs, or else you will have put your time and effort into a property which generates nothing.
Both of the routes mentioned have their pros and cons, but the defining factor for both is the time frame on which you hope to see returns. If you’re starting young or have a long term outlook on investing, buying and renting is probably a better option for you. If you’re already close to retirement or looking for some quick capitol, buying and flipping would suit you more. Regardless, from my point of view real estate is the pinnacle of personal finance and I treat it as my end goal for a lot of the things I write about. If real estate is something you could see yourself getting into, I highly recommend simply tracking the housing markets and property values in your area. This is a great way to prepare yourself to take advantage of undervalued houses in the future, even if you don’t have the money saved now. I would also love to hear from any previous home owners or realtors, I could really use the insight as I continue my path to financial independence. Please reach out here!