Last Updated on Dec 18, 2019 by James W
Buying property has long been the go-to approach for a secure investment, and in most cases, it is. The three main ways of maximizing earnings from real estate are from increasing property value, rental income and business activity generated profit. Although the underlying concepts are simple enough to grasp, implementing them is no walk in the park.
Increasing property value
Contrary to conventional wisdom, property values do not always go up. Every few decades, there is a real estate crash during which property prices plummet: just remember the crisis of 2007-2009. The main metric to be mindful of is inflation, as increases in property value account for nothing if it is under the level of inflation. Experienced property investors are quick to take advantage of an economic climate that occurs every now and then. The best time to buy is when the rate of inflation exceeds (or is projected to exceed) the rate of long term debt. Another thing to look into when considering purchasing real estate is the property value report. It consists of the sales and rental history of a property, as well as detailed real estate information. This can be a good indicator of future value and raise red flags if something does not add up.
Anyone who has ever played monopoly knows that there is money to be made from renting out property. Unfortunately, maintaining a profit stream from rentals is a hands-on process. When renting out your property, you need to be prepared for unforeseen costs and risk mitigation. From broken appliances, to uncooperative tenants, you need to be prepared for anything. The risks vary depending on what type of property you are working with. Storage units carry with them security concerns, businesses you rent out office space to can go bankrupt, industrial units can face environmental investigations, homes can be destroyed by backyard meth labs. Rental income is relatively steady, but you can never expect everything to go well if you have a hands-off approach. Finding a reliable long-term tenant is a major component to a successful and profitable rental project.
The third way you can generate income from your property is through real estate business operations. Whatever business you operate, it always pays to consider what additional services and operations you can provide to generate additional income. These can often be relatively inexpensive to implement and provide a steady cash flow. If, for example, you own a hotel, you can offer to sell on demand movies to your guests. Investing in vending machines is a prudent move if you own an office building, or any other property with increased foot traffic for that matter. Car wash owners can rake in the cash by investing in time-controlled self-service vacuum cleaners.
Owning property is a great way of generating income but putting in the time to do your research is crucial. Before you invest in property, you need to assess all the pros and cons, and be aware of market trends and forecasts. Property is a long-term endeavor, and if you want to make serious money you should never put yourself in a situation where you are forced to sell up at a loss.