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determining what type of real estate to pursue, potential investors
should consider their areas of interest and expertise, their monetary
goals and the market they will be operating in. Real estate investments
are generally categorized as keepers and flippers.
As the name indicates, properties you buy
and intend to keep in the long term are keepers. Such properties
are held for income, future appreciation value and/or tax benefits.
While flippers are those you buy with the intent to sell for a profit
as soon as possible. The price paid is much more critical when buying
a flipper rather than a keeper. |
Single-family homes
Single-family homes
were long considered a poor investment because of their small
income potential in relation to the price paid. In terms of
appreciation, however, these homes have increased in value
at a greater rate than any other type of real estate. Moreover,
single-family homes are the most liquid real property investments.
They can be sold or rented, and the equity earned can be used
as collateral for other loans. There is also a tremendous
amount of financing available for purchasers. When investing
in a home for resale, look for good floor plans, solid construction
and appealing architectural styles. It’s also important
to buy in a familiar area so you can manage the property yourself.
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Buying prior to subdivision
approval
A deposit on a home or
condo that’s still being built can be re-sold for a profit
in many states. Before a housing project is complete, buyers can
make reservations on properties they intend to buy. Until the subdivision
or condo project has received their final local and state approvals,
the buyer holding the reservation can back out of the purchase and
regain their full deposit. Some investors speculate these reservations
by waiting until demand increases and the properties sell out, then
selling off their reservation for a profit. The only downside would
be losing the deposit. |
Vacation
homes
After their
primary residence, many investors purchase a vacation
home for enjoyment and even future retirement purposes.
The property taxes and interest are tax deductible.
The property can be rented for profit in the off-season;
and, owners can take depreciation on the home if they
live in it less than 14 days a year.
Condominiums
Compared to
single-family properties, condos and planned unit developments
have the advantage of being relatively easy to rent.
They also tend to have less problems because the grounds
and common areas are maintained by a homeowner’s
association. On the down side, condos tend to appreciate
slower than other properties and may have restrictive
covenants prohibiting rental of the unit. |
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Fixer-Uppers…
Investors can often find great deals on properties in need
of repair. However, unless you are a contractor, it’s
best to avoid anything that requires major structural work.
Consider the costs of making cosmetic repairs, improvements
and renovations against the potential demand for the finished
product. What seemed like a bargain when you bought it may
not turn a profit if it’s located in an undesirable
area – regardless of the work you put into it.
Apartments
Excellent financing is available for purchasers of smaller
buildings where the owner occupies one of the units. The other
units in the building provide cash flow from rent payments
and those units can be depreciated to lessen the owner’s
tax liability. Smaller buildings are also easier to sell than
larger complexes. Disadvantages to consider: maintenance and
repair to do or pay someone else to do; you give up the privacy
of a single-family home to live on the premises or you must
constantly monitor the property. Problem tenants and their
difficulties are hard to avoid, even with an on-site manager. |
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