Types of Residential Real Estate Investment
If you are just getting into residential real estate investment or looking for new ways to expand your real estate investment portfolio, there are different methods of investing you can consider. Buying houses and multi-family properties can be a very lucrative business if you know what you are doing. Unfortunately, too many people come into residential real estate investing unprepared. They may lose money, break even, or at best make a lower profit than they could have.
Part of your business plan should be know which type of residential real estate investments you want to pursue. This will help you refine your plan, analyze property potential and set more specific budgets. Here are the most common forms of residential real estate investment:
Fix and Flip (House Flipping)
Shows on HGTV make house flipping look easy and fun. It’s certainly fun when you make a good profit from the sale, but fix and flip investing is far from easy. The goal is to buy a run-down property for a low price. Ideally, it will be located in a desirable neighborhood and have strong resale potential once it has been fixed up. The plan is to make repairs and/or perform a complete home renovation to get the house to a point where it is worth a lot more than what you bought it for. Then, you can sell it on the open market for the highest possible price. As long as your selling price is higher than your purchase price, renovation expenses and other homeownership costs during the renovation period (insurance, taxes, utilities, etc.), you will be able to come out ahead.
Buy and Hold (Single-Family Homes)
Single-family homes are traditional houses or single condo units. Again, the goal is to purchase the property at a fair price. You may buy a home that is already in good shape and ready to move in, or you may plan a significant renovation. Once the property is ready, you hold onto it and rent it out as either long-term rental or a short-term vacation rental (if in a vacation destination area). This “income property” produces income on a monthly basis that should offset your ownership costs and generate a healthy profit over time. The other advantage of buy and hold real estate investing is the fact that you will also earn from the property appreciation over time. You’ll make extra money if and when you decide to sell it later.
Buy and Hold (Multi-Family Properties)
A multi-family property is one with multiple units, such as a duplex, triplex or apartment building. You would rent out the units. Some landlords may even live in one of the units themselves. The nice thing about multi-family rentals is that you can diversify with multiple sources of rent. This helps make up for any vacancy periods in any of the units.
You can always purchase raw land that can be utilized in a variety of different ways. You can hold onto it until it becomes a high-demand location for new development. You can build a house on the land (as long as it’s zoned for residential construction) and then sell it or rent it out. Or, it may be better suited for commercial use or farmland. Land holdings can be a great part of your real estate investment portfolio and don’t require much work to hold, but they often take a long time to bear fruit.
You might be able to join a real estate investment group or contribute to an investment fund. Real estate investment trusts (REITs) are generally focused on commercial property ownership/management, but there are some investment funds out there with residential holdings). This may be a good idea if you want to hold real estate in your portfolio without having to deal with the day-to-day management, renovations or other obligations.
This is an advanced form of real estate investment that usually requires dealing in quantity. You would research and identify properties with good investment potential, buy them and resell them to other investors. Profit margins usually aren’t that high with wholesaling, but the numbers add up if you are good at finding the right properties and having a strong network of investors. This is one form of investment that PropertyLark specializes in. We market aggressively to motivated sellers and run detailed property analytics to find the best deals. Then, we either buy and resell the properties to investors in our network, or we hand off the transaction to them directly for a fair finder’s fee.
Whatever type of residential real estate investment you want to explore, PropertyLark is here to help with excellent investor resources, home search tools, off-market deals and custom analytics software. To learn more about our network and to apply, visit our home buyers’ pages.