With the proper “know how” real estate investing can lead to long-term wealth and financial security. About 70% of millionaires in the US built their fortunes in Real Estate (Bailey, 2010). You can do a few things to add real estate to your financial portfolio. I am going to talk about flipping (short-term investment), buy and hold (long-term investing), and shifting classes. Pick which one would suit your personal development and watch your property bring in a return.
Flipping is buying a property at a below market price and then selling it at a market price. You may be able to buy the property below market value because it either needs repairs, or because the sellers have a need to sell the property quickly. The good news with flipping a property is that it brings in profit quickly as opposed to holing on to a property. The only drawback to flipping is that you have to sell the property in order to recapture the expenses.
It is important to understand that one also needs to be in a position to “carry the property if it doesn’t sell as fast as planned. The bottom line is that if one is realistic in their expectations, a lot of money can be made pretty consistently.
Buy and Hold
The second option is to buy and hold. This a long-term strategy as mentioned above. The buyer is using the increase in values over time, generally in conjunction with rental income, to increase their personal wealth. For this strategy to work at its best the “renter” is the most important part. The renter is what will keep the investment coming in at a steady pace. Of course, like any investment there are things to plan for. Things such as repairs, upgrades and time without renters, however if one holds on to a property for over thirty years they can easily double if not quadruple their investment. The cash flow from the rents (especially as they increase) will cover any expenses in the long term. So if you have time and want a something stable without a big profit fast… go with long-term.
Either of these strategies can be used with both commercial and residential properties, as well as undeveloped land. The property may also be shifted from one class to another. Depending on the investor’s needs or desires property can be flipped and exchanged into building a home (residential), or a shopping center, or even a warehouse (commercial). A warehouse type of building may be renovated into loft apartments (B&H, and residential) or sold as loft condos (flipped). A home on a busy street may be renovated to offices and be re-zoned commercial and either rented or sold. Obviously there are a lot of variations that can be employed (Bailey, 2010).