Finding the right investment property can be a challenge, but if done right, it can let you achieve early financial independence. This post will explain the main ways to find several different kinds of investment properties.
What are your real estate investing goals?
Even the best plans go awry without the right goals in place. So what are your goals for real estate investing? Make a 100-day goal and monitor your goals weekly. A massive element of success in making goals is writing them down and putting them in a location where you see them every day. Having the purpose of your day or week or month defined by those goals helps each action that you take help move you in the right direction.
After you write down your short-term 100-day goal, take a look at the long term. Write down your long-term plan property by property. An example of this would be that you want to make at least 1 million dollars in rental income by the end of next year. Achieving goals like this may seem complicated, but if you aren't scared of your goals, then you aren't dreaming big enough!
A good rule of thumb when hoping to succeed is by taking the goal you make, multiplying it by ten, and working to achieve that goal instead. You will be amazed at how creative you can get and how well you can hustle toward a target if you are properly motivated. For example, a way you might achieve your million dollar goal is by saving all of the income you receive from your rental properties and stop living off that cash flow. Instead, put that money back into your business by using it as a down payment or fixing up current properties to attract higher-paying tenants.
Your goals will determine the properties you choose to invest in. Don't just dive into real estate without a plan of attack or you'll be spinning your wheels while you figure out where to go with it. So, write down those plans and keep an eye out! We are going to talk about some property types that will help you achieve some very different goals. Pay attention to the one that resonates with the goals you've set, and think about moving in that direction.
Long-term Rental Property
Ever heard of the long game? The long game means put long, hard work into something that may not benefit you right now, but will help you thrive in the long run. Long-term rental properties are just that-- properties meant to generate income long-term. Whether that looks like a few duplexes or ten apartment complexes, the income you receive from long-term rentals builds on itself the longer you stay in the game. This type of investment is for those looking to make a monthly revenue generated from tenants, while either handling the repairs and updates yourself or turning it over to a property manager.
Short-term Vacation Rentals
Short-term vacation rentals are like fire hoses for income when they are hot, but can just as quickly become money pits in the offseason. Look out for larger homes with exceptional amenities, such as swimming pools and access to a beach. Make sure you pay attention to the location of your vacation rental as well.
You want to find an area that has a steady stream of people coming through. This doesn't always mean streams of tourists, either. If you see a multi-family dwelling within these specs, like one with a mother-in-law apartment, the return on investment is even higher! You also want to make sure these properties don't need a lot of renovations to ensure a higher return on investment. Properties with these qualities (among others) usually do the best on the market. The peak seasons to short-term vacation rentals are the holiday seasons and summer. During those times, you have to continually push your home out there to have money for the costs associated with these kinds of investments. Some of those costs are:
- Fees (depending on the state)
- Cleaning and repair: (Must be done quickly in peak seasons for optimal return on investment)
People who own short-term rental properties may already have access to a home they know will rent well. They might be looking for a way to invest while having access to a great piece of property for vacations. While the ROI can be substantial for vacation rentals, scheduling, cleaning and repairing, is time investments all on its own.
The Buy, Repair, Rent, Repeat method has made many in the market reach their financial goals reasonably quickly. The BRRR method pivots around purchasing a home that is under market value due to repairs or updates that need addressing. Finding the perfect home for this method of investing can and should take time.
After you locate the house, do the repairs yourself or contract them out for a fair price to make maximum profit. The tenants you get will depend not only on the area of the house but by the quality of repairs as well. Once you find renters, you can either use the money gained through the rent or take out a line of credit on the home to use as a down payment for the next phase of this method: repeat. The trick to succeeding in this method is to leverage your debt, pick your properties with patience, finding others to invest with you.
Those using the BRRR method often have the skills to understand the cost of the repairs on the home and have goals of scaling their real estate portfolio quickly.
Flipping a home is easier said than done, and you have to pick a few bad dwellings along the way. Flipping a home means purchasing an undervalued property in need of repair, doing the repairs yourself or hiring a contractor if you have the funds, and selling it for a profit. Occasionally investors purchase a home that has more work than was anticipated, resulting in a drop in profit and an extended timeline.
House flipping is a riskier investment. It is usually taken on by people who can look at a property and see the potential and cost on the spot and have either hard cash loans or another investor backing the sale of the property. The goal of house flipping is often to make a living off of the profits, as it takes a lot of time to do the renovations and locate properties worth the investment.
There are two ways to play the owner occupancy investment:
- Purchase a home in need of repairs and fix it as you live in it. You want to make sure to live in the house for at least a year to avoid the fees associated with flipping the house. After fixing it up and living in it for a bit, you'll be able to sell it for a profit.
- Purchase a multi-family home, fix it up if necessary, and rent out the other units while still living in one of the units. Often, the other tenant's rent pays your entire mortgage, allowing you to save that money for future investments.
A great way to leverage this type of investment is to purchase your first home with an FHA loan. That way you can get started investing earlier even if your credit isn't great with a low down payment. This type of investment does require you to do your homework on tenants as well as the area, to avoid potential legal issues in the future.
With Airbnb growing in popularity, many have started to look to that for their real estate investments. Airbnb allows people to rent out their homes to those looking for vacation rentals or short-term relocation spots. The appeal is these homes are homier and cost-efficient than hotels. You don't even have to own a property for investing alone, you can use your own house! If you do choose to use your own house, however, make sure you can lock all of your personal items away. You don't want a renter leaving with your favorite piece of art!
To succeed in the Airbnb market, you'll need to do your research. Pay attention to the legality of owning such an investment in your location, the popularity of such rentals in your area, and what types of spaces are renting out well there. Airbnb investments have additional hassles like cleaning fees, managing your listings, cleaning after tenants, furnishing the home, and any legal fees and taxes.
Those looking into Airbnb investments usually have a piece of property in mind in the perfect location to sublet out. They may also go on extended vacations during a particular time of the year and want to make money while they travel. While Airbnb investments have the potential to make a lot more money than regular rentals do, they do require more work.
Whatever your investment goals, doing your research is key to succeeding in real estate. Make sure you speak to a local, full-service agent who is knowledgeable about investing. To find a great one near you, check out Clever by calling 1-833-2-CLEVER or by completing our online form. Get connected to a top-rated local agent who will list your home with a discounted commission rate.