What is a good real estate investment?
The answer to this question will depend on your individual investment goals, risk tolerance and financial situation. Here are some general tips to consider when investing in real estate.
Do some research
Before investing in a property, it is important to research the local real estate market and understand the economic and demographic factors that could influence property value.
Look for properties with upside potential
Properties located in areas with growing populations, good schools and a strong job market have increased potential for appreciation over time.
What are my options for investing in real estate?
Here I will not cover all types ofinvestments real estate but I will cover a few that are very interesting.
Different types of real estate investments
Here are different types ofinvestments real estate:
- Projectdinvestment real estate of type purchase, renovation and resale (flip)
- Projectdinvestment real estate rental< span style=”font-weight: 400;”>
- Projectdinvestment real estate rental< span style=”font-weight: 400;”>with option to buy
- Apartment Conversion Projectrentalsin condos
- Projectinvestmentinvestment in lands.
Real estate investment such as purchase, renovation and resale (flip)
This type ofinvestment real estate consists of investing in property real estate which has lacked love and therefore needs renovations. This investment is done at a good price and the cost of the renovations must be the most possible low. Here are the characteristics to consider for this type of project:
- This type ofinvestment ireal estate is advantageous for manual people who have renovation experience to keep renovation costs as low as possible.
- This type ofinvestment real estate usually allows you to get your money back fairly quickly because the resale of the house is done immediately after the renovations.
- The downside is that the profit is often less than other types of projects real estate and it’s hard to do more than one at a time so time leverage is limited.</ span>
L’investissement immobilier de type achat et location
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Buying and renting real estate investment
This type of projectinvestment real estate is to buy property real estate< span style=”font-weight: 400;”> and rent it. It can be a single family residence or a plex. The investment is kept and leased. Here are the features to consider for this type of project:
- The purchase price must be attractive relative to rental income and expenses so that the net operaton income is high enough to service the debt (mortgage) and so that there remains a positive cash flow.
- This type ofinvestment real estatemay require more management if you have multiple tenants for the same property.</li >
- For your mental and physical health, this type ofinvestment real estate may require hiring a management firm which increases fees and affects cash flow.
If done right, investing in rental properties can provide stable passive income, and as the value of the property increases, your wealth will also increase.
Rental real estate investment with option to buy
This type of projectinvestment real estate consists of buying a single family home and renting it to a family who is not yet able to be approved for a mortgage due to too weak a credit.
Theinvestment is therefore to buy the house and find such a family. Then, we determine an amount with which the family will be able to buy back the house in a period of 1, 2 or 3 years, when their credit is better. Obviously, this amount will be higher than the price paid and it will take into account the appreciation of the property over time.
It will also be necessary to agree on the monthly cost of the rent which will give a positive cash flow to the investor and which will be deducted from the total amount of the agreement of the house if the family exercises its option to purchase.
To create an incentive for the family to improve their credit to exercise their purchase option, the investor can request a non-refundable (notarized) deposit which will also be deducted from the price of the house when the family exercises its option to purchase.
What to remember about this type ofinvestment real estate:
- It helps families and so it’s fun to do and you have to find those families.
- It requires little management and it creates little breakage because the good real estatewill be theirs eventually.
Converting rental apartments into condos
This type ofinvestment real estate is quite well known. It is very popular and cities often tend to love these types of projects that can revitalize neighborhoods.
- This type ofinvestment real estate requires checking municipal regulations when submitting your project.
- This type of investment project requires a good capital of departure which can be obtained with investment partners.
Investment in land
This type ofinvestment real estate needs to be future-oriented because you have to anticipate that the land will increase in value over time if it is well located at the geographical level. The challenge with this type of investment is that you have to be patient and think longer term.
Do you need to invest in a diversified way when it comes to your portfolio of real estate assets?
It’s always a good idea to spread your investments across different property types and geographic locations, to minimize the risk that any investment won’t work out as expected.
Are there other things I should know to reduce my risks when it comes to real estate investing?
In investment real estate , it is always a good idea to have one, or even several, exit strategies. For example, an investment in a purchase-renovation-resale project that would generate too many renouncing costs due to unforeseen events can be transformed into a rental project with an option to buy back where the price negotiated with the family will take into account the investment which was needed to renovate the property real estate.
Is it beneficial to work with a real estate professional?
A real estate broker or investment advisor can provide valuable advice and guidance on the best investment opportunities and help you avoid potential pitfalls. So the answer is obvious!
It’s also important to remember that real estate investing can be a long-term commitment, and there is no guarantee of success. It is a good idea to consult a financial adviser before making any investment decision.
Contact Matthieu Pépin, real estate broker in Sherbrooke, for the best advice and to analyze the investment potential of a property. Note that real estate brokers are there to serve your interests.