Investing in Northern VA Real Estate
Whether you are looking to buy your first investment property or your fifth this is a great time to expand your portfolio and invest in your future! Home prices are more affordable than they’ve been in years, interest rates are near historic lows and there are tons of great deals. All of these factors create a tremendous opportunity for you, the real estate investor! For those of you unfamiliar with the ins and outs of real estate investing we’re going to take a few minutes to give you a basic breakdown of how it works and why it is one of the best forms of investment you will ever make.
The first thing that we need to make clear when buying investment property is the obvious-it is an investment. This is not a home you will live in and, unlike buying your primary home, it is not a decision that is partially based upon emotion. If you do not separate your personal tastes, emotions and opinions from the investing process then you are far less likely to make money and might even run the risk of losing some. We can get into more detail later on how to analyze an investment property but just remember this is not an emotional decision. It is one based on facts and numbers.
Before you decide to buy an investment property we need to discuss the two main types of real estate investments: the ‘buy and hold’ and the ‘fix and flip.’ Both types can be very rewarding when done correctly but not every investor will be comfortable doing both. Let’s discuss both techniques and then you can decide which is a better fit for you.
Buy and Hold
Did you know that over 50% of millionaires made their fortune through real estate? And not everyone is a Donald Trump. Many millionaire investors are everyday people just like you that saw the opportunity real estate presents. Over time there is no other investment vehicle that can guarantee you as much of a return as buying and holding property as rentals. In fact, the government wants you to own property and they will help you do it! So let’s delve into the advantages of buying rental properties and see if it is a good fit for you.
In one word, what is the biggest benefit to buying real estate versus stocks and bonds? Leverage. If you buy $20,000 worth of stocks you have exactly that; $20,000 in stocks. That same amount invested in a property could buy you a $100,000 investment. Now let’s assume each investment had a 5% return over the course of a year. You just made $1,000 in the stock market, not too shabby. Guess what? You just gained $5,000 in equity for your property, that’s a 25% return on investment!
The next benefit to holding rentals is appreciation. Sure, both the stock market and the real estate market have ups and downs and both will go up over time, but real estate is much more predictable over a long period. Even if the stock market goes up, there is no guarantee that your specific stocks will increase in value. On the other hand, if you buy a home in an area with a strong local economy (such as Northern Virginia) and a high demand for housing, you know that the value will increase over time. Over the past 50 years the average annual appreciation of real estate nationwide has been 5% per year. Also, the amount you receive for rent will increase over time but your mortgage (assuming it’s fixed) will stay the same so you will actually net more money per month. If you hold onto property long enough to pay off that mortgage you will have some tremendous cash flow!
The last big reason to purchase rental property is that Uncle Sam wants you to! Indeed, one of the founding principles of this country was based upon homeownership. You get tax write-offs for interest paid, depreciation and even certain repairs or upgrades. The government wants people to own property and savvy investors have known this for years, taking advantage of all the incentives that are provided.
The one thing that scares off some would-be investors is the idea of being a landlord and being responsible for a tenant and any repairs. The good news is that not only can we help you find a great investment property, but we can manage it for you too! Let us handle the day to day operations and headaches while you focus on your life. You’ll be glad you did. Visit us at T&C Home Management to learn more about what we have to offer.
Fix and Flip
The process of finding a distressed property, fixing it up, and re-selling it is more commonly referred to as a fix and flip or flipping property. While rental properties are the key to long-term wealth, flipping properties can provide you with some fantastic short-term gains. Though there are advantages to this type of investing, it is not for everyone, so let’s discuss a bit further what is involved in the process.
Before we jump into the advantages of flipping properties we want to help you determine if this is something you should consider doing. First, this type of investing is much more time and labor intensive than holding rentals. If you cannot dedicate yourself to being on-site at least part of every day, you can’t keep an eye on contractors. Second, if you don’t know much about construction or home renovation, it might make it difficult to get a grasp on costs and a budget. This can be somewhat overcome by having a good contractor (we can give recommendations). But if you lose sight of your budget on a flip, then you can and will lose money. Lastly, you need to do a LOT of homework. When buying rentals you still need to analyze carefully, but you have more leeway for mistakes because it is a long-term investment. If you miss something with a flip you can lose your shirt in a matter of months. Luckily our team has agents that specialize in investment properties and can help guide you through the process.
So if you’re still reading...we assume you haven’t been scared off and are ready to hear about the great aspects of flipping properties and how it works. As a short-term investment you can make a great return fixing and flipping homes. Using leverage and doing your homework you can make double digit returns in a matter of months. As an investor you can also get some great deals on distressed properties, including foreclosures and short sales, which most homeowners are afraid to touch and banks don’t want to own. When flipping properties the cardinal rule you must always remember is that you make money when you buy not when you sell. This type of investing, even more so than holding rentals, is all about reducing risk and the way you do that is to know your numbers. Our investment property specialists are here to explain all the details and help you along the way in finding a home that will give you a great return.
So hopefully you can see how buying real estate investment properties can be profitable, no matter which path you decide to go down. We don’t have enough space on this page to describe all the details and intricacies of analyzing deals, but we would love to have the chance to sit down with you and go into more depth about the entire process to help determine what works best for you. So give us a call or use the contact form below; it’s never too early or late to begin investing in your future!