Please note: this is a contributed post.
Financial independence is all about being able to develop the portfolio of investments and incomes so that you no longer have to rely solely on your job. If you do it right, your job will no longer be an essential part of your survival.
Property is one of the hottest markets and could offer the returns that bring you closer to that financial independence. Here, we’re going to look at a few different ways to use property as the stepping stone you need.
Starting Small
Even if you don’t have the money put together to start investing in property that you own entirely on your own, that doesn’t mean that you can’t invest in property. In this case, you might want to look at real estate investment trusts. There are mutual financial groups that allow individuals to put their money together.
You can join a trust to invest in a single property alongside other investors. You can also join to invest in the entire portfolio, which might be more expensive, but can mitigate the risk of tying your finances to a single property.
Make Sure You Have the Capital
If you’re buying a house or a property for investment’s sake, you need to put more money aside than if you were buying it for yourself. The process of buying the property remains similar. You save for a down payment, then you apply for a loan, and you pay off the amount of overall home value minus your down payment plus interest.
However, while you might be comfortable buying your home on a 20% deposit, 30% deposit or, sometimes, no deposit at all, you shouldn’t take the same approach to investment properties. After all, you already have your own home costs and expenses to deal with, you want the costs of your investment property to be lower, so you can see a return all the sooner. A 50% deposit is recommended for investment purchases.
Find an Area About to Grow
One of the key talents of the repeatedly successful property investor is their ability to catch on to an opportunity. The opportunity that’s the most profitable of all is buying a property then finding that the area around it suddenly develops. It’s never certain whether the value of a certain neighborhood, town, or city will rise. There are signs you can look for that show a certain area is likely to increase in value.
For instance, if there are more properties being developed in that area, if there are more businesses opening branches there, and more amenities and services being developed, it’s only natural the value of property in that area will rise. The only thing that you have to consider is whether you’re the first to notice. If not, you could have missed that golden opportunity. As more buyers start flocking in, the value of all the property in the area will rise rapidly.
Don’t Rush
Unless you’ve found an opportunity that you can absolutely capitalize on, don’t be in a rush to start buying up investment property. You might be excited to start building your financial future, but that enthusiasm can cost you. Going “heart over head” can give the seller a much more advantageous position when discussing price.
Be willing to wait for advantageous offers, for off-season periods like winter, for foreclosures and the like. You can look at and bid on other properties while waiting, just don’t pull the trigger until you’re sure you’ve got a good deal. It’s also worth waiting for your credit score to improve if it’s not in the best shape right now. Otherwise, interest rates can make it harder to find the profit in the property.
Should You Buy a Fixer-Upper?
Buying low and selling high is the secret to success in any market, and this goes for real estate as well. One of the most effective ways to buy low is to look at homes that the average buyer isn’t willing to look at. Most people are looking for home ownership, not investment purposes.
A fixer-upper, to them, looks like an inconvenient place to live. For you, however, it represents the opportunity for real profit. Without the worries of discomfort, you can benefit from the lower price of a fixer-upper and steadily make the improvements that allow you to sell it at a higher value.
Making the Right Improvements
Buying a fixer-upper is an easy way to find yourself saving money during the home purchase. There are plenty of home improvements you can make that could potentially raise the value of the home, as well. However, it’s wise to have your business plan for a development property laid out ahead of time.
Take a close inspection and figure out how much it will cost to make all the repairs and improvements that you’re currently considering. Then do some research and try to find out how much value those improvements will really add. Otherwise, you might end up buying a property and dumping money into it only to find out that those improvements didn’t result in a decent return on investment.
Vacation Home Strategy
Not all investment real estate has to be bought and sold close to home. There are other markets you can take advantage of, such as the vacation home market.
When looking for a house for sale in 2018 for the sake vacation home rentals, you want to consider where you can buy low-cost property but can attract enough tourists to make sure that it’s in use all throughout the peak season. This way, not only do you get an investment, but you also get somewhere you can retreat to at a low cost during your own time off
Becoming a Landlord
You may other be interested in acquiring a rental property that is closer to you. Residential rental homes might not attract as much yield per week as a vacation home, but they are occupied the year round (if you find tenants) and can be considered fairly reliable investments.
If you want to profit from renting out property, however, you have to treat it like a business. This means doing as much as you can to market the property and ensure it stays occupied year round. Things like setting the right price, doing credit checks on tenants and more.
Don’t Put All Your Eggs in One Basket
We’ve outlined a few different investment strategies here. Let’s assume you have the funding and flexibility to go with any of these suggestions. Which one should you choose? The answer depends on finding markets where rental properties are successful, where there are plenty of buyers, a good tourist location, etc.
But if you can find those, you want to invest in as many different kinds of real estate as possible. This is what diversifying your portfolio is all about. The more kinds of investments you have, the less likely you are to lose your entire investment because of the shifts in one market. Invest in different types of property, in different locations, to build a secure, profitable portfolio.
If you’re investing in property, you need to take it seriously and do your research, before buying. If you don’t know the market, it’s easy to buy a property for far more than you should have or to invest in a property that ends up netting you nothing because there’s no demand for it. Take your time and due a bit of research before taking the leap into investment property ownership.
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