As the landlord, you’ll be responsible for things like paying the mortgage, property taxes, and insurance, maintaining the property, finding tenants, and dealing with any problems. Unless you hire a property manager to handle the details, being a landlord is a hands-on investment. Depending on your situation, taking care of the property and the tenants can be a 24/7 job—and one that’s not always pleasant. If you choose your properties and tenants carefully, however, you can lower the risk of having major problems.
One way landlords make money is by collecting rent. How much rent you can charge depends on where the rental is located. Still, it can be difficult to determine the best rent because if you charge too much you’ll chase tenants away, and if you charge too little you’ll leave money on the table. A common strategy is to charge enough rent to cover expenses until the mortgage has been paid, at which time the majority of the rent becomes profit. The other primary way that landlords make money is through appreciation. If your property appreciates in value, you may be able to sell it at a profit (when the time comes) or borrow against the equity to make your next investment. While real estate does tend to appreciate, there are no guarantees.
The are two primary approaches to flipping a property:
-Repair and update. With this approach, you buy a property that you think will increase in value with certain repairs and updates. Ideally, you complete the work as quickly as possible and then sell at a price that exceeds your total investment (including the renovations).
-Hold and resell. This type of flipping works differently. Instead of buying a property and fixing it up, you buy in a rapidly rising market, hold for a few months, and then sell at a profit.
With either type of flipping, you run the risk that you won’t be able to unload the property at a price that will turn a profit. This can present a challenge because flippers don’t generally keep enough ready cash to pay mortgages on properties for the long term. Still, flipping can be a lucrative way to invest in real estate if it’s done the right way.
Still, one drawback of investing in real estate is illiquidity: the relative difficulty in converting an asset into cash and cash into an asset.
Unlike a stock or bond transaction, which can be completed in seconds, a real estate transaction can take months to close. Even with the help of a broker, simply finding the right counterparty can be a few weeks of work.
As with any investment, keep your expectations realistic, and be sure to do your homework and research before making any decisions.