Are You A Tortoise or A Hare?
Admit it: at some point on a weekend afternoon or in a hotel room you’ve found yourself flipping through the cable channels and gotten sucked into one of those home remodeling shows. They’re a guilty pleasure. After you’ve admired (or judged) the choices made on the TV show, have you fantasized about fixing up a property yourself? Or do you thank your lucky stars that you don’t have to? Even if you’re not the next Joanna Gaines there’s a real estate investing strategy that can work for you.
Fix & Flip
The Fix & Flip strategy relies on finding properties that are priced below market value. A home needing some updates and/or repairs, or a layout that makes additional construction relatively easy are all great options. These improvements, called forced equity if you’re fancy, can lead to a quick profit. But quick doesn’t necessarily mean easy. Investing in a fixer upper property requires an outlay of time and energy in addition to money. Even if you hire the labor for the repairs and upgrades you’ll still be required to oversee it all. And labor costs are only some of the costs you might encounter. Be prepared for unexpected structural repairs and the transactional costs of buying and selling the property. Additionally, if the quick profits made from your flipped property come too fast, think less than one year, you can incur a surprising tax bill. With so many things to consider, having a knowledgeable realtor help you find the right property is critical to the success of this strategy.
Buy & Hold
The amount of work required to earn the relatively fast money of a Fix and Flip property means that most financial experts consider those earnings “active” income. If “passive” income is more your speed, you might consider the Buy and Hold strategy. As the name states, this involves finding a property you intend to hold on to, and earning money by renting it out. With this strategy you actually earn money in two ways: from the rental income and the increasing value of the property. There are also tax benefits to long-held investment properties that can pad your bank account as well. However, just like a fix and flip property, “passive” income doesn’t mean that this investment strategy is entirely without its labors; finding good tenants, maintaining the property and dealing with the legal issues requisite of being a landlord are just a few. Once again, finding the right property that aligns with your financial goals is key.
A qualified realtor finding you a solid property that can generate a stable income stream might make the most exciting reality tv show, it certainly makes a lot of financial sense.
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