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There was a time not so long ago when owning property was tantamount to a license to print money. Then came the inevitable crash, and while the market has steadily recovered in recent years, broader world events have cast a pall of uncertainty. Yet 820,000 houses sold last year, the highest number since 2008. Clearly, there’s an active market out there, and there is money to be made for investors. However, success is heavily dependent on what you buy and where you buy it.
What the flip?
Home flipping – whereby you buy, renovate and sell for a fast profit has become a popular strategy for those of us with an unexpected windfall or perhaps that unused travel budget sitting idle in the bank. The practice has taken the UK by storm over the past year and is also popular among would-be property moguls in the US. However, here, soaring renovation costs can throw a spanner in the works, meaning that some flippers are barely breaking even.
A study by CNBC found that successful flipping in 2021 is all about location. It listed the toughest areas, where the average flip broke even at best, to be Corpus Christi and College Station in Texas. At the other end of the scale, flips in Oklahoma City, Fargo and Pittsburgh brought the average speculator returns of more than 150 percent.
Buy to Let – Think Like a Tenant
For decades, people have seen this type of real estate purchase as a longer-term investment that will bring in a steady passive income. That remains the case today, but you can’t just buy anything and expect it to be a money machine. Buy the wrong property and it can rapidly become just another expense and worry hanging around your neck that either generates no income or brings you rent that barely covers the costs.
The biggest mistake that you can make with this sort of property is to buy it with the same mindset as if you were purchasing a new home to live in. Here’s a newsflash, it doesn’t matter whether you like the property yourself or not. Research your market and build a persona for your ideal tenant, whether it is a young professional, a retired couple or even a houseful of students.
See things from their perspective when you view the property and have all the figures to hand in terms of how much you will be able to charge for rent. A quick and easy rule of thumb is to aim for around one percent of the property value in rent per month. It means a $300,000 property investment is only viable as a buy to let if you can rent it out at around $3,000 per month. Put another way, if you are looking for an investment property in a particular neighborhood where the average rent is $2,000 per month, you need to set your budget at around $200,000.
Flipping or buying to let are both forms of property investment that can prove lucrative. But only if you approach them with the right mindset and after fully researching the market.
Disclaimer: This content does not necessarily represent the views of IWB.