Property remains one of the safest investments available for people looking to increase their wealth, but that doesn’t mean it’s simple. Making money in property is more than just purchasing an apartment and waiting for the rent to come in.
Property investment requires shrewd planning, an acute awareness of your budget, capabilities and expectations, and an understanding of how the market is moving. Before you make an investment in property you need to have an awareness of what you’re actually trying to achieve and how this fits in with your financial goals.
Before you dip your toe into the lucrative property market, understand the forces at play and several tricks you can use to increase your chance of success. Here are some best practice tips for making money in property.
Follow the market
It’s important to know the temperature of the pool, before you dive in. The manner in which the real estate market is performing will have a drastic impact on the results you can expect to achieve with your foray into real estate, and the type of investment that represents the most effective use of your time and money. Different markets offer different buying and selling opportunities, and it’s important to understand what these options are and how they fit in with your investment goals. Because of this, a risk conscious approach is generally the most effective one. While markets generally correct themselves in same way or another, a risk conscious approach will make sure you’re prepared for rising interest rates and dips in consumer sentiment.
Long-term investments provide canny, patient investors with a great opportunity to secure their future. Investments of this nature usually require a substantial capital outlay to begin with, but the returns can be quite significant, particularly if you have the awareness to buy at the right time and the patience to wait for the right time to sell. The focus for long-term investments must be on cash flow. Acquire the property below market value, make the appropriate repairs and as the market starts to improve draw the rent from tenants or sell for a profit. A long-term investment requires good timing and patience, but it can turn out to be a real cash cow.
Fix and flips
If you think you’re better suited to a more gung-ho approach to real estate investment, perhaps it might be time to try your hand at a few fix and flips. Acquire a property below the market value, fix any obvious problems and even consider making some of your own renovations. The key to success with a fix and flip is being aware of your budget, capabilities and expectations. Are the costs involved going to outweigh the benefits? Some properties may require major renovations that might be beyond your DIY capabilities. Costs can spiral out of control, particularly if you need to get a few contractors in to get your property up to snuff. As long as you’re aware of your costs and how these fit in with what your expectations are in regards to profit, there’s a lot of money to be made with fix and flips, and this can be a very rewarding way to make money out of a property investment.
Real estate investment trusts
This is a great option for people looking to make their money work for them, without having to worry about the ups and downs of the stock market. Real estate investment trusts, or REITs as they are commonly known, are huge funds that make significant real estate investments on behalf of members. Dividends and profits from these investments are passed back on to shareholders, so if you see an opening in the real estate market but don’t have time to do the legwork, REITs represent a pretty good option. You might not stand to make as much as you would with an individual investment, but sometimes it helps to have someone who knows what they’re doing in charge, particularly in times of consumer unrest and great market turbulence.
Using your personal residence to enter the market
The actual house you’re living in at the moment might prove to be the best way to dive into the sometimes choppy waters of the real estate market. If you’ve invested in a property during a buyer’s market, and lived there for two years or so, there’s every chance that you could sell it when the market corrects itself and walk away with a sizeable tax-free profit. Buying into the market outright can be quite a difficult task, but if you already own a property you’ve already got your foot in the door.
If you’re willing to play the long game, you may also consider investing in raw land, particularly in areas projected to experience growth in future years. Often this will require a significant initial outlay and may require a few year’s work, but if you put the planning and effort in, when all’s said and done you stand to achieve a sizable return. As with long term investments, it is crucial to understand your budget, capabilities and expectations. You may feel as though a DIY approach might be a good way to save some money, but there are certainly some jobs that are best left to a contractor. At the very least you’ll save yourself a significant headache.
Effect of inflation
Inflation may not be a big part of your day-to-day thinking, but when it comes down to investing in property it can make a huge difference. Admittedly there’s not a huge amount you can do about this, but be mindful of the position of the dollar when you’re putting money down for your investment. It may not be as valuable as you thought it’d be, but at the same time, there’s every opportunity you may be able to get a little more out of your investment if the dollar is performing in the right way.