Purpose of this blog is to understand the differences between these investment properties! Different investment properties have varying risk and return profiles. In order to make a good investment you have to start by knowing what you want to invest in.
Preconstruction Rental Properties
When people start thinking about investing in real estate, they usually look at preconstruction properties. Specifically, people start by researching preconstruction condos and townhomes. One of the big benefits of investing in preconstruction is that you get a discount based on how early you purchase the property. The main risk is that although virtually every preconstruction property is completed, the schedule of completion may vary. When considering preconstruction properties, don’t focus too much on the incentive packages like free furniture or free parking. Instead, focus on the vacancy rates in the area, where the rent prices are going and what you think the real estate value of the property will be in the long run.
Resale Rental Properties
For more seasoned investors, the resale property presents an opportunity. A resale property is a home or condo that has been lived in by someone already. Unlike preconstruction properties, with resale you get what you see. That being said, you need to ensure that you get a thorough inspection of the property. Furthermore, if you are looking to make your money back through rent, make sure that people are actually looking to rent in that area. If people are indeed renting in that rea, ask your Realtor what the average capitalization rates are in the area. The cap rate will tell you what your rate of return on your real estate property will be based on the net operating income and value of the home. The higher the cap rate, the better your rate of return.
If you live near a college/university town or if you have children that have moved away for school, you know that there are real estate investing opportunities on every campus. The major draw of investing in student housing is that you get almost guaranteed tenants every single year. The fact is, students need a place to live when they are away for school. However, the major drawback with investing in student housing is that you will need to be constantly worried about damages to your property. Not all students are reckless, but if you happen to get a group of students who like to throw parties, your house will suffer the consequences. One way to avoid the stress of managing a student house is to get someone else to do it! There are a lot of property management services that will gladly take the job.
Vacation homes can be great investment properties but they can also take a lot of time to manage. If you are planning to rent a property outside of peak holiday seasons or long weekends, you’re going to be spending a lot of time looking for renters. Luckily, with new technology like Airbnb, you can find travellers who want to rent vacation homes a lot faster than before. For those of you who don’t know yet, Airbnb is an app that allows people to find vacation homes around the world. In fact, Airbnb has made it viable for many vacation home owners to start profiting from their real estate investment. That being said, don’t just rely on new technology to make your investment worthwhile, you still have to look at the investing fundamentals, even for a vacation home!
“Fix & Flip” Properties
We have all met someone who made money flipping a home. In other words, they bought a home, did some renovations and then sold it at a higher price. However, many people get themselves into flipping properties without doing their homework. It’s easy to make money flipping homes when real estate prices are going up quickly. But, if you’re going to flip a home you need to make sure you can make money even if prices stay relatively flat. To do that, you need to budget your expenses and schedule your renovations with the utmost precision.
If you do well flipping houses, then you might want to start investing in teardown properties. A teardown property is a home that you plan on demolishing and then building a new home to take its place. Many real estate investors do this in relatively expensive areas with old properties. Teardown properties can prove to be lucrative investments. However, to be successful you need to have some serious construction and/or contracting experience on your resume. Furthermore, it takes a lot longer to demolish a house and then build another from scratch. That timeline leads to a higher risk that the real estate market slows down or even drops. The possible rewards from investing in teardown properties also come with significant risks.
- Best in Burlington Team