Article by Marco Kozlowski
When looking into real estate investments, there are several points to keep in mind.
One of the most important things for getting started is to have a good understanding of the current market.
Purchasing real estate at market price generally does not provide ample returns. Investors should look for properties that are at below market value.
Despite a recovering residential market, luxury homes have been providing impressive returns. In 2014, luxury home prices rose 4%, but in the same year their value appreciated 8%. As the residential market continues to recover that appreciation value could continue to accelerate.
Turnkey properties also offer fairly guaranteed returns. They are properties that have already been redeveloped, have current tenants, and a property manager. They essentially take much of the work out of property investing by being purchased as a packaged deal rather than separately taking care of all the pieces. The downside to turnkey properties is they tend to offer overall smaller returns and higher purchase cost.
Vacation homes offer property owners the ability to travel to their various properties; however, in terms of direct returns on investment, they tend not to provide high revenue. During vacation season they can recoup their costs, but the long spans of vacancy keep them from doing much better than that.
Real estate investment trusts (REITs) can be a way to get into the market with low initial investment costs and more reliable returns. REITs are companies that own, develop, and redevelop properties. They offer many options for investments, but tend to follow the success of the stock market rather than actual property values.
Owning rental properties can provide big residuals but it takes quite a bit of finesse to make successful. If an owner does not have personal expertise in day-to-day management of rental properties, they can hire a manager to take care of it but that cuts sharply into profit.
Another option is purchasing rundown properties and renovating them to sell them at elevated prices. Flipping houses also relies on expertise on how best to improve a property in the shortest amount of time and without too much cost. Success in flipping houses depends on selecting market neighborhoods and knowing hidden costs of different areas that would possibly cut into profits. Vacant properties can offer major gains if they are in neighborhoods that are on the up and up or if they are across potential infrastructure improvements, but they can often be a major investment risk that overshadows possible worth.
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