There are myriad ways to invest your money, and many of you are interested in stepping into the world of real estate. It is known throughout society as one of the best and smartest ways to spend your money and time, largely because the real estate market tends to be profitable. Losses will still happen, but at an alarmingly lower rate than other investment possibilities.
For example, you’re much better off investing lots of money into real estate than crypto trading if you want to make sustainable, long-term gains.
It’s a very steady market to get into – and the other benefit is that it’s probably the only investment market where you have control over the value of your investment. When you buy a house or some land, you can do things to it to bump the value up. That’s what makes this such a fascinating idea, and today’s post will center around the two main real estate investment strategies you can use to generate profits:
- Buy-to-Let
- Property Flipping
The Buy-to-Let Strategy Explained
Buy-to-let investing is a unique strategy that involves buying a property and renting it out to other people. When you look at all of the other investment options out there, you won’t find many that follow the same concept.
Going down this route will involve:
- Finding A Suitable Property: Not all properties are suitable for this type of investment. You should look for real estate that’s in a fairly urban area and can legally be turned into a buy-to-let investment. You want to invest in locations with an active rental market, as it will be easier to find tenants.
- Ensuring You Have A BTL Mortgage: If you’re not buying the property using 100% of your own money, then you will need a home loan mortgage. The crucial thing here is that you must obtain a specific BTL mortgage. You can’t invest in property with a standard mortgage and then use it as a rental.
- Managing Tenant Applications: When the house is in your hands, you can put it on the market for people to rent. This will involve a lot of advertising, but you’ll eventually receive tenancy applications. Your job is to screen prospective tenants before filling in a lease agreement template that they will sign.
- Managing Tenants: Once the lease agreement is in place, a tenant will live in your property and pay rent every month. All you have to do is manage this property and ensure your tenant keeps it in great condition.
Why Do Investors Like This Strategy?
Buy-to-let investments are popular with real estate investors for one simple reason: you will earn a passive income while your investment grows in value.
Monthly rental payments give you real cash to use as you please when someone occupies your home. At the same time, this property still increases in value over time, meaning you could easily sell it in a few years for profit. Even better, a buy-to-let investment with a positive track record of earning money can go up further in value as future BTL investors will be very keen to take it on and inherit your tenants.
Think about it this way: it’s like investing in stocks, but every month you get a lump sum payment from the stocks & shares without needing to sell anything.
Is There A Downside To BTL Investment Strategies?
The only downside is that you can spend a lot of money on your investment if you’re not careful. You may need to pay a property management company to take care of things – and then there’s the general maintenance for tenants. These costs can add up over time so you need to make sure your rental price reflects the amount of money you’re putting in.
The Property Flipping Strategy Explained
So, on the one hand, you’ve got a strategy that involves buying a property and renting it out to other people. On the other hand, property flipping is far more straightforward – it’s the act of buying a property, fixing it up, and selling it for a profit.
The process usually involves:
- Buying A Suitable Property: For property flipping, you’re looking for homes with room for improvement. You don’t want something totally rundown, but the best investments could do with a lick of paint. You’re also keen on negotiating the price down as low as possible to give a wider profit window when you flip it.
- Adding Value To Your Investment: This is where property flipping truly takes shape. You need to make any repairs or additions to the property that will add value to it on the market. For example, replacing an ancient roof with a brand-new one will elevate the property’s market value. It’s all about finding ways to improve your property without spending too much money.
- Selling The Property For A Profit: “Flipping” your property involves putting the house back on the market for more than you spent on it – including the improvement costs. You will be surprised how easy it is to raise a property’s value and make a serious profit.
Why Do Investors Like This Strategy?
Property flipping is popular because you’re in control of most things and can find ways to manipulate the value of your investment. Moreover, you can conduct the entire process of flipping a property in a few months. Many investors will buy, fix up, and sell a property within the same calendar year.
You can also make some serious profits if you find the right house – but that brings us to the next question.
Is There A Downside To Property Flipping?
Yes – you can end up in a serious money pit. Pick the wrong home and you end up spending money on something that will never go up in value. You also have to be very cautious when upgrading a property to avoid going over budget.
All in all, more things can go wrong when flipping properties, yet the potential gains are bigger than buy-to-let investments.
Which Strategy Is The Most Profitable?
It depends on how you want to invest and what your key goals are. For long-term, steady gains, nothing beats buy-to-let real estate. But, if you want to make short-term gains and invest in numerous properties one after the other, then property flipping is the better choice.