Investing in properties is an overall straightforward process, considering that your goal is to purchase real estates, shun bankruptcy, generate income (by renting out the properties) and investing it into more estates. However, just because the basic guidelines of process are clearly traced does not mean that it is easy.
In this business environment, mistakes usually lead to insolvency or worse. In general, for a real estate investor, most of the mishaps occur during the phase of generating additional income. This guide focuses on presenting the main methods used by the investors to make money and the potential risks associated with each of them.
Monitoring changes in the market
One technique to create wealth from real estate investing is to make sure the properties you own appreciate in value. This process entails that a property becomes more valuable mostly due to the changes in real estate market. The typical changes that reflect the real estate appreciation include the scarcity of the land around the property, having a major shopping center nearby or constantly investing in upgrades for the property, as to make it more appealing for buyers or renters. While over the first two you have limited to no control, investing in upgrades implies assuming a lot of risks and is very tricky.
Cash flow income
A more popular approach to making cash from real estate, which is also less financially hazardous, comprises of the cash flow income. In short, this technique involves investing in properties (apartments, condos, houses, villas, office buildings) and operating them so that you can collect a constant stream of cash from rent. This income generating means works well in any location, as there will always be people who need a place to live and companies that require base to conduct business. It is necessary to point out that you will have some expenses (mortgage, maintenance, utilities, etc.) to account for. If the bills you pay for the operating expenses are higher than the income generated from rent, you are not running a profitable business and you might need to re-orientate or make major adjustments to the business plan.
Ancillary property investment income
One suggestion of increasing the cash flow income, which can be regarded as yet another means of making money as an investor, is considering ancillary real estate investment income. As you probably already figured it out, this implies integrating mini-businesses within the main business by providing essential services that the renters find useful (laundry facilities or vending machines in apartment buildings, etc.). However, while for some investors, the implementation of these ideas fails miserably; for others, the ancillary investment is a huge source of profit.
A further method of generating income as a real estate investor is leverage. Since the technique comprises of using someone else’s money to purchase property, it presents several risks and it is not recommended for people with no experience in real estates. However, the profits that can be made with this method, providing that you are a very patient person, are definitely impressive. Consider this example: you purchase a property that is worth $300,000 and invest about $40,000 for appreciation reasons. If in two years, the house costs $20,000 more because it has increased in value, then by selling the home and after paying the mortgage, you will have $60,000 left.
Do you have what it takes to grab the bags of green dough in this property arena?