|
Real estate investing is divided into two distinct categories. These categories are defined by the intent and activities of the investor or property owner. The first category pertains to the owner who purchases a property with the intent to hold the property and obtain a source of rental income from it. The second category refers to the investor who purchases an undervalued property with the intent to fix it up and repair it in order to appreciate the value and then resell the property at a profit.
Often these categories are mistakenly intermingled. A homeowner who purchases a property and lives on the property for 10 years, and then sells his home for double or triples the original purchase price in order to relocate is not truly considered a real estate investor. Such a transaction does not actually bring as much profit as it appears. Factors such as inflation and alternative investment performance potential lessen the actual value of this investment as compared to a more typical investment such as the ones listed above.
Looking at the first category there are several factors to consider before jumping into an investment opportunity. These factors are very different from deciding whether or not to purchase a home. The main reason is that the investor must remember that he actually has no intention of living at the property; therefore he must consider the current demographic trends of his city or town for each property. For example, in a university town filled with young people it would be silly to consider purchasing rental property near a hospital or elderly medical care facilities. Of course seniors are often regarded as very positive and secure renters, but the main demographic push of the area is among students. Therefore a better strategy would be to purchase properties near the university or school in order to ensure the location is always rented. The circumstances vary city by city and even neighborhood by neighborhood but the concept is sound everywhere. Consider local demographics and economic trends before investing in rental property in order to keep a clear focus on what will bring you the most continual profit and help maintain rental continuity.
The second category of investment refers to the property buyer who purchases undervalued houses, fixes them up, and sells the properties at a profit. This type of investor takes a huge risk with each purchase. There are a number of factors to consider when investing in property in this manner, but perhaps the three most important ones center around one thing: location. No matter how many coats of paint are on the wall, nothing will appreciate a poorly located house. A clear example of this includes the following. In a very nice suburb, with nice schools, good infrastructure, and low crime, there were two houses to consider. One was very well fixed up, the owner was a professional handy-man and had enlarged the dining room, restructured the upstairs, put in new wiring, and re-landscaped the entire property; the whole place appeared fresh and new. There was just one problem: At the back of the house was a busy highway that was used by large tractor trailers 24 hours a day. The second property was not fixed up in any way, it was not exactly run-down but it was obviously showing age. The roof needed work, the floor had to be re-polished, and the kitchen was hopelessly out of date. The second house overlooked a quiet park and was very close to major public transportation networks and had easy access to the highway ramp. Both houses were Cape Cod-style houses and were just as old, yet over three years the second house appreciated in value by $65,000 while the first house increased by only $15,000. Location is everything.
Investing in real estate is risky but with great risk come great rewards so long as the fundamentals are kept in mind. Follow the above guidelines as you consider your investment approach and what will be most profitable to you.
|
