Investing in real estate can be exciting, but it’s extremely important to first define your investment goals and strategy. By identifying your goals, you’ll be able to find the best strategy that will help you work towards them. Whether it’s to earn passive income over a period of time, make a “quick buck” or more, you can build your portfolio in no time by applying the right strategy for your South Florida residential rental property.
If you’re planning on purchasing an investment property, you have several options regarding your rental strategy. Our property management agents have outlined the top strategies to help you narrow down your options.
#1 House Flipping
House flipping as an investment strategy is ideal for investors that have a genuine interest in renovating homes. Also called a “fix and flip”, this investment strategy involves purchasing a low-cost property, fixing it up, and then selling it for a profit. If you were to partake in house flipping, you’d make money in a short amount of time. As a short-term commitment, you’d also be free from the trouble of dealing with bad tenants.
The obvious downside is that a fix and flip is expensive as you’ll have to repair the entire property. If you don’t have the cash on hand to pay for repairs, you may find yourself in trouble. You could always get a mortgage, but be sure that you can sell the property promptly.
#2 Buy and Hold (Short Term)
There are two types of buy-and-hold strategies: short-term and long-term. A short-term buy and hold contemplates purchasing a property, repairing it, and then renting it out for a predetermined period of time. As an investor, your goal is to profit off of it in five years.
Investors apply the short-term buy-and-hold strategy to be able to purchase more investment properties. They use the rent generated by one property to purchase another or to pay another home’s mortgage. As a short-term investment, it allows you to make a decent amount of money, but it does come with certain risks.
For one, if the market takes a downturn, you won’t be able to reach your investment goals in five years. You’ll also have to actively oversee your property, or alternatively, partner up with a property management firm.
#3 Buy and Hold (Long-Term)
This is the most popular type of investment strategy as it allows investors to grow their wealth slowly. With this strategy, you won’t have to ensure that you recover your initial investment (i.e. the amount you spent to purchase, repair, and run your rental property) within a specific period. The goal is to generate passive rental income over a long period of time.
Property management companies recommend the long-term buy-and-hold investment strategy because it gives the property ample time to appreciate. Over time, the property’s value will increase, and in effect, so will the investor’s profits.
The downside to this strategy is that the investor will have to be hands-on in dealing with tenants and in general property management. Fortunately, this minor inconvenience can be easily mitigated by hiring a full-service property management company.
#4 Short-Term Rentals
Short-term rentals cover investment properties that are rented out as vacation homes. This investment strategy is similar to a buy and hold, but the main difference is that tenants don’t have to rent it out for long periods at a time. Furthermore, you can also use the investment property as a personal vacation home whenever you want. For example, if you wanted to use it as a vacation home for the summer but rent it out after, it provides you with the flexibility to do as you wish.
However, since you’re not renting it out regularly, the cash flow from a short-term rental won’t be as consistent as compared to a buy-and-hold. Unless you’re able to secure short-term tenants every time, this investment strategy won’t be the best option if growing your wealth is your goal.
#5 Turnkey Properties
If you’re looking for a rental property that comes with tenants, consider a turnkey property. When you invest in a turnkey property, you assume the ownership of the multi-family property as well as the active tenancies of the people that are already living there. This saves you the time it takes to screen potential tenants. In short, you take over the role of the current investor. Alternatively, if you’ve hired a property management company, they can handle the property for you.
The risk with turnkey properties is that you won’t be able to control who lives there because you can’t kick out the current tenants. In other words, you won’t start with a clean slate. And, since the property is rent-ready, there’s a chance that you’ll have to pay more to purchase it.
#6 Live-In Then Rent
If you can’t afford to purchase a property, you can turn your current residence into a rental property in the future. The “live-in then rent” investment strategy involves using your house as your primary residence for now. While living it in, you get it ready for your future renters. Once you’re ready, you can refinance it and buy another property that will become your new primary residence.
Unfortunately, it does take time, so you won’t be able to make a fast profit. However, it is ideal for those who want to become landlords but aren’t prepared to commit to the landlord’s life yet.
Which Strategy Should You Choose?
Again, your real estate investment strategy should be based on your goals. If you want to make money now, a fix and flip is an excellent choice. On the other hand, if you’re interested in generating passive income over a long period of time, and you have the patience to slowly grow your wealth, go for a long-term buy and hold.
Whatever investment strategy you choose, the experts at Luxury Property Care can help you oversee your investment property. With our expertise, we can maximize your investment and guarantee that it generates positive cash flow.