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A real estate investment can give you the best of both worlds - current income at good rates and long-term gains with high upside potential. Add in the possibility of leverage with borrowed money and you can see why more fortunes are made in real estate than any other business .
You can start your own empire on a small scale. Here are some possibilities:
- Single-Family Homes. This is the easiest place to start because there's nothing fancy about it and the downside is small. Banks are happy to finance you with a mortgage or a construction loan.
Just buying and selling short-term - flipping homes - is tricky because prices won't jump in just a few months. Instead, buy a dilapidated or foreclosed house and fix it up. If you manage the costs right, you'll see a good return within a year.
Be sure to hire an inspector before you buy, there are always more repairs than you think. You'll need to hire and supervise a general contractor or individual contractors, which can be grueling because they often work on more than one project at a time. You'll need to deal with permits and inspectors. You'll need to consult with real estate agents to ensure there's a market for your product. Everything will take longer than you thought. But if you can bull your way through this nightmare once, the second and third time will be a piece of cake.
Once you're comfortable with contractors and permits and real estate agents, why not go all the way? Buy a piece of land and build a home from scratch. You'll have greater leeway to meet local market tastes and you'll get a bigger return. Be sure utilities are accessible, and spend a lot of time scouting regulations and codes.
Important data you'll need! What are the prospects for home prices? Don't just take a real estate agent's word for it, do your own research. Check home price trends in the "Tools" section at FHFA.gov. You want a recent history of steady price increases (but not above 10 percent a year - booms are dangerous). Check the local economy at BLS.gov, search for "metropolitan payrolls" and look for your metro area; you want jobs growing at least 1.5 percent in the past year.
- Single-Family Rentals. Buy your house, fix it up, or build from scratch, and then rent the place out. It's easiest to start with a smaller home because you'll have the greater number of potential renters - you're competing with apartments after all. It's also best to start small because you may find that being a landlord is not for you. You'll need to find tenants, collect rent, make repairs, be on call for complaints, it can be a hassle. You can do a lot of work yourself but everything takes time. Also be prepared for the tenant from hell - find out beforehand about eviction procedures, and keep a lawyer handy.
Important data you'll need! Find out how many renters are in your area and what kind of rent you can expect. Go to the "QuickFacts" section of Census.gov. In addition to the owner-occupied housing rate (the inverse is what you want) and gross rent, you'll find demographic information that will help you market your rental. Also check the FHFA.gov and BLS.gov sites above, because you're more successful in a growing market.
- Apartment Rentals. Once you're happy being a single-family landlord, buy a house and cut it into apartments. Or buy an existing apartment building. Or build some townhouses on your piece of land. In many markets the economics favor apartments. You'll have to deal with different permits and regulations and you may need a permanent manager if you own enough units. But if you're handy with tools you can easily manage a dozen units yourself.
Buying or selling an apartment property - or turning it into condos - is different than selling a house. which is why many investors cut their teeth on a single-family rental first. An apartment property is basically an income stream with a net present value. The potential for large gains is tied to leverage and low-cost financing. The financials and tax treatments can get complicated. But because it's difficult it can also make you a lot of money.
Important data you'll need! As above, use the free info the government collects and publishes at FHFA.gov, BLS.gov and Census.gov. It's highly detailed, very comprehensive, and better than most private research can provide. You want to be investing in a market with a growing appetite for housing.
The internet makes it much easier for investors to market and manage properties, from traditional listing services to social media postings, and with apps that help you manage repairs, communicate with tenants and handle your accounting. Investors only need to make two crucial decisions - does this investment suit your style? and is the timing right?
