Owning your own home is far from the beginning of real estate ownership. There are countless success stories of people who made a fortune, retirement, empire—or even just a comfortable extra income—by investing in real estate. Investing in real estate typically is not just investing in buildings, but rather investing in the income stream tied to a particular building, which is generated through the rent paid by the tenants. Here’s an overview to get you thinking about an investment property. Residential is a great way to start with rental properties, because they are relatively inexpensive compared to commercial property, however there are plenty of commercial opportunities that will compare in price to the residential opportunities.
Is investing in Real Estate Risky?
In general, real estate is usually considered to have a risk that is somewhere between that of stocks and bonds. The leases on real estate are similar to bonds, while the rents lucubrate with the market like stocks and the anticipation of a future sale at a higher price is similar to stocks. This is somewhat of an oversimplification but serves to place real estate among other capital investment alternatives. Real estate provides diversification benefits to investors because it performes differently from stocks and bonds, and has proven to be an excellent hedge against inflation. There are several ways investors approach real estate investing.
Improving a home
Quickly flipping a home is one way to make money off a real estate investment, but it can be risky. Grand Junction presents fewer flipping opportunities than other communities with larger housing inventory, however there are great deals to be had even in Grand Junction. A safer play than flipping is to buy a fixer upper and carefully manage costs over a year or so as you improve the property. You’re likely to get a great return, and there are more houses like this available. This stratgy is based solely upon the appreication gained by market appreciation over the hold period and maximizing value through improvements.
Instead of selling your investment property, you can rent it and make a good monthly profit if the rent exceeds your costs. Renting to a stable, reliable tenant can put extra money in your pocket every month for years on end. You can even hire a property manager, like Red Compass Realty, to handle repairs, rent collection, and other administrative tasks. And if you’re ever ready to stop dealing with tenants, you can sell the home and profit on the improvements and appreciation of your asset.
Multi-family rental properties
Renting out a single family home is a good starting place for investment properties, but you can get an even better return once you learn the ropes and move on to multi-family homes. Buying an apartment building or dividing a larger home into several apartment units comes with some added complications with taxes and regulations, but it also comes with huge income potential.
Commercial properties are governed by a separate set of rules and regulations by the federal and local governments. Taxes are higher and depreciation costs are spread across more years (unless it is a residential use like multi-family). Some of the advantages to commercial real estate investment include: working with businesses who typically have more pride of ownership and tend to lease for periods longer than one year. Lease rates also tend to be higher, however fluctuate more with the local economy.