Investment property refers to real estate purchased for the purpose of generating profits. Numerous types of properties exist and each produces income at a varying pace. For example, rental homes produces monthly income while house flipping generates a one-time cash payout.
Investors need to determine which type of investment property best suits their needs. Some investors prefer to build portfolios slow and steady, while others elect to diversify and purchase multiple property types.
Investing in rental property is a good choice for investors who prefer long-term residual income. Rental realty can supply investors with monthly cash flow as long as paying tenants are in place. However, rental homes must be priced according to market conditions and tenants carefully selected. Real estate investors should engage in routine maintenance to keep houses energy efficient and in good overall condition.
House flipping or wholesaling are good real estate investment choices for investors who prefer quick cash. Flipping houses is not as popular as it used to be simply because the market is oversaturated with discounted real estate.
In the past, investors would purchase distressed properties such as foreclosure, short sale or bank owned homes at significantly discounted prices. They would renovate the property and sell it within a few months. Profits could range from a few thousand to several thousand dollars, depending on the property type and location.
With today's lack of qualified buyers, house flipping has become less popular. This is not to say investors cannot earn profits in this niche. However, unless investors have a strong network of qualified buyers they must be financially prepared to hold the property for several months or years.
Presently, the housing market is a mess. Many homeowners owe more than the appraised value of their property. Obtaining a home loan has become increasingly difficult, which in turn results in a reduced number of buyers. Banks are holding onto foreclosure homes in hopes of selling them at higher prices in the future; thus, reducing the number of discounted properties available for investment purposes.
What does this mean for realty investors? Simply put, it means they must work harder to locate profitable investment properties for sale. Over the long run, investors who make informed decisions can generate substantial profits when the market rebounds. In the meantime, they must work harder to locate distressed properties and retain tenants residing in rental homes.
One option investors are turning to is offering seller carry back mortgages. Investors act as the financial lender for all or part of the purchase price. Most investors' offer 80/20 mortgages; meaning they carry 20-percent and the buyer obtains a conventional home loan for the remaining 80-percent.
When sellers carry back a portion of the mortgage note, they become the second mortgage note financier. Offering sellercarryback can expedite the sale of the property because buyers are seeking partial financing of the home loan through the mortgage lender. Sellers offering 100-percent financing can attract buyers unable to obtain conventional home loans.
Although the housing market is still on shaky ground, investors who conduct market research and network with real estate professionals can still profit in a recessed market. While it requires additional work and creative financing, real estate has a proven track record of being a smart investment.
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Published on November 20, 2009 at 02:48 AM
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