Over the past decade, many people who were actively involved in real estate had made good returns. This is not surprising as properties values tend to be on the rise over a period of time. They are not as volatile as other investment such as the stock market for instance. However, the question now is… Is it still a good time to invest in real estate now since the mortgage or housing market was hit by a crisis?
Not many people believe it but the answer to the above question is yes. Well, because the price is low now hence it is a good time to buy. The most basic principle of any investment is to buy LOW and sell HIGH. But, unfortunately most people don’t apply this principle.
It is the same if you were to invest in a portfolio of stocks for your retirement. In order to get the best return, you want to make sure that you are buying stock at its intrinsic value. Unfortunately, 95% of investors don’t follow this principle, they are after those hot and high-priced stocks instead. This is a mistake because they are overpriced. That’s why so many people lose money when there is a financial crash because those overpriced stocks will also be crashing down (back to their intrinsic values).
So, the same principle applies when it comes to investing in a real estate. Buy when the price is low to get good return in the future. Of course, you must be willing to hold it for 3-5 years till the dust has settled and your investment will rise in time.
But there are several strategies you can use for property investment.
Flipping property is one strategy in which you buy a property by paying a holding deposit and then try to sell it before having to pay the balance. For example, let’s say you find an off-plan property up for sale from developer for $185,000; the completed property will be selling for $200,000.
You pay a 20% deposit (which is $37,000), with the final balance of 80% ($148,000) due in 18 months when the property is completed. Let’s assume that you have picked a good location and the property goes up by 20% over the next 18 months. So the property is now worth $240,000.
Let’s say you manage to sell the property for $220,000. You pay off the 80% balance you owe and you are left with $72,000. This gives you a NET profit of $35,000 in 18 months and remember you only had to commit $37,000 initially. This is a return on investment of 94.5% over 18 months. Where can you find an investment that can give you more than 90% return in 18 months?
Another property investment strategy is Foreclosures. Many foreclosure prices are significantly lower than the market prices. So again, you are applying the principle of buying LOW and selling HIGH. However, this strategy often requires you to have a substantial cash outlay. You must also perform proper due diligence when researching foreclosures. Are there any other additional liens against the property other than that of the foreclosed note?