When it comes to real estate development strategies, there’s no one way to do it. There are multiple strategies to consider, not to mention varying factors.
But there at least three real estate development strategies being followed by successful investors today.
The first is the bargain purchase which means you were able to buy the real estate for at least 20 percent below its current market value. How do you make such a real estate investment? Easy. Buy foreclosed houses or those in a pre-foreclosure short sale.
These are actually easy to come by if you know where to look.
The first place to look for such an opportunity is at the classified ads. Look for banks with scheduled foreclosure auctions. Banks are often at the receiving end of mortgaged houses and regularly sell these at auctions. They will usually come out with advertisements with a couple of details about the property and the minimum bid.
If you are not able to find such advertisements, you can go directly to the bank or check their websites. They usually have this kind of information available in document form with the listing of all properties up for sale.
You can also look for brokerages specializing in selling foreclosed homes. Often there are companies that cater to such. They buy the properties from beleaguered owners who cannot pay their loans anymore or whose houses are already about to be foreclosed.
These houses are then included in their database listing all the houses up for sale.
Before making your first real estate investment by buying a mortgaged house, make sure that there are no problems with the property’s documents. The companies selling you the property will most likely detail the issues or problems surrounding the property.
The second way to make a real estate investment is through the increase-value strategy. Under such a strategy, you purchase a property even if its cost is the current market value. Just make sure that it has some unrealized potential you can tap into once you renovate the place. This can be a house in the suburbs that you will turn into a commercial area or a simple bungalow with a large lot and a nice view of the sea. Play up on the property’s potential and you may find yourself with a gem of an investment.
However, time is of the essence with such a real estate investment. You must be able to increase its value by at least 20 percent within six months for the investment to be worthwhile.
Under this strategy, you can also buy lots and build townhouses or other kinds of infrastructure. Just make sure that the end result will give you a profit and not a headache.
Finally, the most common real estate investment strategy followed by even those not interested in home flipping and development is buying a property and waiting for its value to increase in the market.
These are mostly done by long-term investors. But others tend to look down upon such a strategy because it’s mostly based on speculation. Some buy properties near the cities, hoping that in five years or so the demand for such places will increase, and so will its value or market price.
While a handful had become wealthy because they followed this strategy, it does not fit in the flipping industry that requires you to sell your property as soon as your acquire and repair it.
Remember that while a real estate investment usually needs time to mature, in the home flipping business you are the one that makes sure that the property appreciates in value, not time.
In fact, you will be always running against time because the costs of upkeep and operations will start to pile up. You don’t want to spend on the maintenance of a home you’re itching to sell. As days pass by without you making a sale, the costs of upkeep will erode your profits and you might eventually end up breaking even or worse, selling on a deficit.
There are some home flippers who actually sell before buying a property though this is rare. They do this by striking a deal with the owner of the property and the potential buyer. The buyer might be interested in the house but would not bother to repair or renovate it by himself so he’ll rely on the flipper.
To be able to do this, you should be really experienced in the industry and have made a mark and a lasting reputation. Clients who are willing to buy into such a scheme would have to truly trust you, either because they know you personally or you had already done it for one of their friends.
In the end, it will all depend on your ability to spot a great real estate investment, the property’s potential, and the needs of your market.
Related: Buying properties wholesale