The real estate market needs to shift its way of thinking. Investors, whether buying one property or several, have been looking at shorter returns for years. In fact, the idea of flipping property has become very popular. The concept is simple, you buy a rundown property for a low price and fix it up with cost-effective resources and sell it for a major profit.
There are times when investors could double their investment in a single year with the same property. Those opportunities are not really an option any more, but there’s still plenty of ways to make money in the real estate game. The key to being successful now is focusing on inventory while also being patient.
Why Flipping Doesn’t Work
Flipping a house is a great concept but there’s one problem, everyone knows what you’re trying to do. They can now easily go online and see that you purchased that house a year ago for $200,000 and now are trying to sell it for $500,000. That means they should expect to see at least $150,000 or more of improvements made to the property. Five years ago, that math worked out perfectly. Now, not so much.
The first issue is that you are not going to get a property that is worth $200,000 that can be improved with only $150,000 and sell for half a million dollars. It’s nearly impossible because the properties that are selling for that cheap need much more than $150,000 worth of renovations. If renovations cost $250,000, it would be difficult to get the property to sell for $750,000 or more.
How Rates Can Impact Your Options
Interest rates are having a major impact on the current housing market. One of the key impacts it is having is that it is causing inventory to go up. Because it is taking longer for houses to sell, more and more houses are being listed, giving shoppers more of a variety. Once you purchase a house, you are spending thousands of dollars more on your mortgage than you would two years ago. That’s because of the interest rates.
There are benefits to rates being up but those benefits vary based on each buyer. For example, if you have a smaller income-to-debt ratio, even with a strong credit score, the interest rates may push the monthly mortgage payments past what the ratio will allow. This is why many people who want to buy a home are now working two jobs, because they need to maximize their income so that they can afford a house.
5 Year Options With Your Property
If you are unable to flip a house for a major profit, and you are unable to keep the costs down because of interest rates, how does it make sense for someone to invest in a house? The answer to that has to do with a new strategy in investing in real estate. Instead of focusing on short-term returns, focus on long-term returns, short-term income. This concept creates a unique opportunity for the investor where inventory is more valuable than profit.
Years ago an investor would put all their money into a single property or two because they would need to get the work done faster to maximize profits. Now, because of higher costs and the challenges of making a profit, it benefits investors to hold the property longer, especially if they can rent it out.
How You Can Utilize Your Property
AirBnb and renting apps make it extremely easy to find new tenants. It’s an exciting option for real estate investors who want to cover the short-term costs of a property while also focusing on long-term potential gains. The advantage to this strategy is that you can still make improvements to the house quickly, but now instead of selling it, you are generating passive income from the property that can go towards the mortgage and maybe even give you a little profit.
This strategy is working well for many investors and even new homeowners have adopted the concept. Yes, your plan when you buy your personal home is to hold it for a while. However, having an actual five year plan on how to utilize the property and make it cost-effective while adding the improvements it needs to gain serious value is the smart way to go. The key is finding the right property. That’s where a realtor comes into play.
Important Realtor Tips
The main recommendation realtors offer when discussing where to invest is to look at places that have proven to be reliable in the past during different types of economies. This gives you an idea of where you can invest your money and expect to see profits in the next five years or longer if you choose to hold.
