Is real estate a good investment? Consider this: according to Forbes, real estate consistently ranks among the top industries for creating millionaires in the United States and around the world. Even if your income goals are not this lofty, well-planned investment in real estate can provide excellent returns.
However, like any investment, real estate is not without risks. Unlike stocks that may be sold quickly for cash, real estate has limited liquidity. Consider the housing downturn during the Great Recession; home prices plunged faster than properties could sell. Investors who sold to “cut their losses” after buying at the peak of the market, lost considerable sums.
Yet there were plenty of other investors took advantage of low-priced real estate and bought as much as they could. This latter group has already enjoyed a significant run-up in equity, while collecting rents and enjoying the tax advantages that come with real estate investing.
Is real estate investing right for you? It depends on your tolerance for risk, your financial resources, and your investment strategy. If you do the math right in the beginning, you’ll be better equipped to handle unexpected situations.
Here are some common real estate investment tactics:
- Buying a property and renting it out. Today’s low interest rates make it feasible to leverage your real estate investment. You’ll want to ensure that the monthly rent covers your ownership expenses on the property, with some positive cash flow left over.
Some investors strictly buy what they can afford to pay for in cash; but as property values increase, this scenario becomes more difficult to duplicate.
A word of caution: negative cash flow is the leading cause of real estate investment failure. You must be prepared for periods of vacancy, and the costs of repairs, and unforeseen increases in property taxes or other routine expense.
- Value appreciation. Home values are on the rise, making a buy-and-hold approach viable for future gains. If you dislike the idea of being a landlord, consider purchasing a vacation home that you can personally enjoy, and then sell for a profit in the future.
- Rehab and resell, also known as “flipping.” If short-term investing is more your style, buying homes that need renovation could be a good option. Advance planning and careful inspections are necessary for this strategy to succeed. This is an ideal strategy for the handyman who can perform the repairs. Note: it’s important to keep property location in mind. Look for opportunities in desirable areas, or in areas that are experiencing renewal.
- Development. Buying raw, undeveloped land and coming up with a development plan doesn’t need to be a large-scale project. A vacant city lot that allows zoning for a residential dwelling or a mixed-used commercial property can be a great way to start. You can build-and-sell, or build and lease. This is more speculative than some other strategies, but careful planning leads to success. Lots that are close to public transportation, college or corporate campuses, or other new developments are a plus.
Real estate investments can provide attractive cash flow while building equity and offering numerous income tax advantages. If property management or landlord responsibilities are holding you back from starting or increasing your real estate investment portfolio, please click here to learn more about our property management services.
Interested in exploring real estate investments in the Charlotte area? Contact us for a no-obligation consultation about available properties with investment potential!