What is Your Financial Objective
There are 2 primary motives for investors. First is immediate quick return on investment. Next there is the long term cash flow and appreciation strategy. Which ever method you prefer will dictate the type of property you invest in. Short term or long term that is the question. There is no right or wrong answer it is just personal preference.
Short Term Real Estate Investing
Infamously known as property flipping an purchase of real estate for the expressed purpose of immediately reselling it for for profit is known as flipping. There has generally been good profit in short term and this investment strategy has been the subject of many late night infomercials. This is the reason there are so many property flippers today. A lot of them were burned in the recent financial markets melt down. The premise in property flipping, as in all investing, is to buy low and sell high. Flippers rely on values appreciating or even remaining steady as they purchase distressed properties below market value. Flippers are also dependent upon mortgage money being readily available to their end buyers. As property values decreased and lending tightened many flippers were left holding properties that they could not afford. Some sold properties for a loss and others walked away leaving the property for the lender to deal with. This happens when investors are under capitalized, without a solid exit strategy. Potential risk increase as potential reward increase, especially for short term investors. This is a little better than trading in the commodities markets where risk and reward are very high.
Long Term Cash Flow and Appreciation
The opposite of short term is long term. The goal is to still buy low, yet those who chose to hold for cash flow and appreciation have a different outlook on the property they purchase. They are looking as owners, not renters. They want to make sure the property is in good shape both now and in the future. They would rather invest in materials and systems that last and provide the lowest long term cost versus the cheapest purchase price. When it comes to renovation and rehabilitation of the property the investor who has a long term outlook will want to have the work done right with good quality so they do not have to do it again over and over. Ultimately the long term real estate investor is also more concerned with long term financing as well. A investor with a short term outlook does not care about interest rate because they will not have the loan for a long time. They are more concerned with points, fees and prepayment penalties as they have a direct impact on their short term return on investment.
Whether you are looking to hold your property for the long term for cash flow and appreciation or you are looking for an immediate return on your investment will dictate your real estate investment strategy. Once you determine your strategy everyone on your team needs to be aware of your goals. Your team would include your Financing Specialist, Contractor, Attorney, Realtor and Accountant. When everyone is on the same page then your plan will work at its best. Just choose your strategy, establish a long term game plan, share the plan with your team and stick to it to make it work.