Investing In Properties, The Smart Way
Investing in Properties: The Smart Way
Most people are familiar with the concept of renting properties- it's an easy way for the landlord to start earning an income on their own, while not having to manage any employees or operations.
However, did you know that other kinds of real estate investments can be just as simple? Different types of real estate investments exist, each with their own pros and cons. Understanding these differences can help you decide which one might work best for you.
Property Investments In General
Before looking into what different types of property investments there are, let's first talk about what real estate investing in general means. When someone "invests" in properties, they typically use their own cash to buy an asset, in the hopes that they can sell it for more than what they spent on it (and perhaps even make some profit).
There are many different ways to invest in properties- whether you're looking into further developing an existing property, or you want to start buying one of your own.
When you want to invest in properties, it's important to have a specific type of property in mind. Your investment strategy will be entirely dependent on what you want your property to be. You will have to look at things like the potential income, prices of similar properties in the area, and what your cash flow would look like.
If you're using your own money, it's important to have a specific budget in mind as well.
Different Types Of Investments
Wholesale Building Materials
So what are different types of real estate investments? To start with the most common, let's talk about wholesale building materials. This might not sound like a property investment at first but it's related. When you invest in wholesale building materials, what you're doing is purchasing large quantities (10+ pallets) of material like bricks, wood studs and cement to sell on your own. Generally speaking, this type of investment involves a lot less work than other types of investments require. You don't really have to worry about how the building materials are going to be assembled, as that's handled by contractors paid by clients who later purchase those items from you. This makes it a good first step for those who want to start earning from properties.
Buying and Flipping Houses
Another type of property investment is buying and flipping houses. This is more in line with what most people think of when talking about investing in real estate. When you buy a house from the initial property owners, you'll generally need to make some renovations (painting, flooring, new bathrooms), pay the mortgages on it as well as some other bills (property taxes etc.), and then put it up for sale. If you're lucky, you can sell it within a year or two for much more than what you paid for it- the classic example of this is buying a house that's worth $800,000 and selling it after 10 months for $900,000. While there are some risks involved in flipping houses (for example unskilled contractors causing further damage to the home, or not being able to sell it at all), this is a popular way of earning money on properties. It's far from as instant as selling and buying on the stock market, but a flipping income is something you have more control over. Some properties can appreciate in value over time and one of your investment strategies may be to wait maybe more than a year to generate cash in a seller's market. As long as you don't run into cash flow problems that can lead to financial distress, holding onto the property can help you earn money that substantially outweighs all the expenses. House flipping may not yield as much in the long run but the boost in cash can help you get enough money lined up to delve into a long term investment that can evolve into rental income. Make sure to consider potential tax implications, check out the CRA website for more information.
Buying and Renting Out
The third type of property investment is buying and renting out residential properties. If you invest in apartments, you might purchase a block of flats (multiple units) or just one apartment. This type of investment involves more work than the others- you'll need to hire and train employees, handle maintenance issues etc. A property manager may be able to help you retain a day job while still generating passive income from your rental property. However, there is more profit potential as well: if rent for a flat goes up over time, your property value will rise with it. Not to mention that modern tools like AirBnb can facilitate your ease of finding the right tenants, or create specific experiences for short-term guests. Of course, there are risks like going long periods of time without finding quality tenants. Depending on your level of involvement, this can be considered active income that results in steady monthly income. Remember though, not all rental property is equal; owning rental property doesn't automatically translate into high earnings.
To summarize: Property investments can take many different forms- some of them are more straightforward than others. Dealing with wholesale building materials is a good place to start as it involves less work than flipping houses, but still has potential for further profits. Investing in rental properties requires more work but also promises bigger returns.
Reading Your Clients' Minds
Now that you have a better understanding of the different property investments out there, what other factors should you consider when deciding which one (or ones) to pursue? One of the most important factors you should think about is what kind of clientele can be found in that area. For example, if you're thinking about investing in wholesale building materials, this might not be a good idea if you live in an area where there's no market for such services (or the market won't allow you to make a profit).
On the other hand, if you choose to invest in rentals or flipping houses, it's important to consider what your clients want. For example, when you're looking at investing in apartments, this would be easier if there is an increasing population in that neighbourhood- otherwise, there might not be enough people to rent all the properties out.
Choosing Which Properties To Invest In
The next step is to decide on what kind of money you want to invest, and how much risk you're willing to take. If your total budget is $100,000 and you want a guaranteed return within a year, buying and renting out apartments might not be the best choice- while it does have the potential for high returns in time (especially if rent goes up), this may take too long for you to see any kind of return. This method also requires more upkeep and involvement than the other two. On the other hand, buying wholesale building materials might be a better idea if your budget is more limited and you want to generate a return on your investment sooner. There is less room for profit, compared to renting out properties, but you can use what you earn to reinvest in further property investments in less than a year.
As with all investment decisions, adding up the pros and cons is important. Your initial investment depends on what you can afford but the right decisions can help you create a sizable stream of ongoing income.
You need to weigh your current financial situation, the amount of time you can invest in both the short and long term, and the return you eventually want out of your investment.
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