Investing in real estate is one of the best ways to make a lot of money in 2020. Andrew Carnegie is quoted as saying that 90% of millionaires got their wealth through real estate investments. Besides enjoying a great return on investment, here are a few other benefits of investing in real estate:
- Tax breaks and deductions – Property owners are allowed to deduct the costs related to owning, managing, and operating an investment property. The government offers tax breaks for legal fees, property taxes, travel expenses, maintenance and repairs, and even property depreciation.
- Real estate appreciation – Generally, property values rise over time. This means that investors can make a good return on investment when they decide to sell.
- Build equity – Wondering how to buy multiple rental properties? As you pay off your mortgage on an income property, you build equity. You can then use this equity as leverage to purchase even more properties.
Related: What Is Equity in Real Estate?
- Portfolio diversification – Owning real estate allows you to diversify your portfolio of assets, thus lowering your risk.
- Hedge against inflation – Rents and property values usually increase in direct proportion to the rate of inflation. This means that as the cost of living goes up, so does the cash flow generated from real estate.
So if you have 200k saved up, investing in real estate is a great move to make. Let’s get into how to invest 200k in real estate.
How to Invest 200k in Real Estate
Let’s say you want to invest 200k in property – it really is the best way to make a high return. Some of the real estate investment strategies you can use to make money include fix-and-flip, house wholesaling, buying REITs, and the BRRRR strategy. However, the best way to invest 200k is by investing in rental properties.
Here is how you can invest in a traditional or Airbnb rental property and make good returns:
Choose the right location
When it comes to how to invest 200k in real estate, location is very crucial. The location of your income property will have a direct impact on property prices, rental income, occupancy rate, rental expenses, and return on investment. Here are some of the things to look out for when choosing a real estate market:
- A strong job market – Look for a town or city that has a high employment rate, good average income, and a wide range of employers.
- Positive demographic trends – A high population growth rate will ensure long-term demand for rental properties. You should also find a neighborhood experiencing an influx of new residents.
- Amenities – Think about amenities that would attract potential tenants. This includes good schools, parks, restaurants, hospitals, and transportation hubs.
- Profitability potential – Finally, you need to choose a location that assures a high ROI. You can use Mashvisor’s real estate heatmap to analyze data from multiple neighborhoods in the real estate market. This tool comes with filters such as listing price, cash on cash return, rental income, and Airbnb occupancy rate.
Let us consider where to invest 200k in a property. Here are some of the cities where you can get a good return on investment from a cash flow property. And you’ll be able to pay less than 200k on the purchase price:
#1. Altoona, PA
- Median Property Price: $133,952
- Price per Square Foot: $78
- Price to Rent Ratio: 14
- Traditional Rental Income: $812
- Traditional Cash on Cash Return: 4.2%
- Airbnb Daily Rate: $84
- Airbnb Rental Income: $1,268
- Airbnb Cash on Cash Return: 4.2%
- Airbnb Occupancy Rate: 47%
#2. Redford, MI
- Median Property Price: $140,127
- Price per Square Foot: $117
- Price to Rent Ratio: 9
- Traditional Rental Income: $1,300
- Traditional Cash on Cash Return: 6.8%
- Airbnb Daily Rate: $128
- Airbnb Rental Income: $1,393
- Airbnb Cash on Cash Return: 4.7%
- Airbnb Occupancy Rate: 52%
#3. Youngstown, OH
- Median Property Price: $156,283
- Price per Square Foot: $91
- Price to Rent Ratio: 17
- Traditional Rental Income: $789
- Traditional Cash on Cash Return: 3.7%
- Airbnb Daily Rate: $94
- Airbnb Rental Income: $1,752
- Airbnb Cash on Cash Return: 6.0%
- Airbnb Occupancy Rate: 63%
#4. Peoria, IL
- Median Property Price: $157,529
- Price per Square Foot: $88
- Price to Rent Ratio: 14
- Traditional Rental Income: $917
- Traditional Cash on Cash Return: 2.5%
- Airbnb Daily Rate: $82
- Airbnb Rental Income: $1,379
- Airbnb Cash on Cash Return: 3.6%
- Airbnb Occupancy Rate: 71%
#5. Akron, OH
- Median Property Price: $165,498
- Price per Square Foot: $96
- Price to Rent Ratio: 14
- Traditional Rental Income: $958
- Traditional Cash on Cash Return: 4.4%
- Airbnb Daily Rate: $84
- Airbnb Rental Income: $1,724
- Airbnb Cash on Cash Return: 4.6%
- Airbnb Occupancy Rate: 56%
#6. Lansing, MI
- Median Property Price: $167,718
- Price per Square Foot: $96
- Price to Rent Ratio: 19
- Traditional Rental Income: $745
- Traditional Cash on Cash Return: 1.8%
- Airbnb Daily Rate: $150
- Airbnb Rental Income: $1,899
- Airbnb Cash on Cash Return: 6.2%
- Airbnb Occupancy Rate: 71%
Parts of Ohio, Michigan, and Illinois are called the Rust Belt. Learn more about investing in this region: 4 Best Rust Belt Cities to Invest in Real Estate.
#7. Waterbury, CT
- Median Property Price: $169,929
- Price per Square Foot: $110
- Price to Rent Ratio: 11
- Traditional Rental Income: $1,279
- Traditional Cash on Cash Return: 3.8%
- Airbnb Daily Rate: $203
- Airbnb Rental Income: $2,249
- Airbnb Cash on Cash Return: 4.7%
- Airbnb Occupancy Rate: 42%
Remember: Always research Airbnb regulations before making a purchase for this rental strategy!
Use leverage and buy multiple rental properties
Leverage is one way to invest your 200k in real estate. This will allow you to buy multiple rental properties for sale.
You are one of the lucky ones who has the funds to invest in real estate. So you may not have ever considered using leverage to buy real estate. But taking out loans and using your 200k as down payments for a few rental properties is a great strategy for generating a high ROI. Rather than owning one expensive investment property, you can own a couple, more affordable ones. With them, you can generate more rental income, diversify your portfolio across a few different markets or property types, and spread your risk as well.
Find off market properties
Off market property refers to homes that have not been listed on the MLS. This includes short sales, bank owned homes, foreclosures, and REOs. Such properties have less competition, a better sales price, and a higher return on investment. Using your 200k, you can purchase a few of these properties, likely without turning to debt.
Strategies you can use to find off market properties include checking public records, bank websites, attending real estate auctions, networking with agents, driving for dollars, and direct mail marketing. Alternatively, you could visit Mashboard for homeowner information or the Mashvisor Property Marketplace to find a wide range of off market properties.
Related: The Best Tool to Find Off Market Properties
Analyze the rental property
Rental property analysis involves collecting data and doing calculations to determine if buying rental property makes financial sense. This is an important step that you cannot skip if you’re investing your 200k in real estate. You don’t want to lose all of your hard-earned cash on a lemon investment property. Analysis will ensure you avoid that.
Mashvisor’s rental property calculator will provide you with the numbers required to estimate the potential rental income, expenses, and rate of return on rental property. The most important metrics generated will be cash flow, cash on cash return, and cap rate. The calculator will also help you establish the optimal rental strategy for an investment property.
Related: How to Do Rental Property Analysis in 2020
Conclusion
Want to get rich with 200k? The best way to invest money for a high ROI is to buy a rental property.
Final Tip: When thinking of how to invest 200k in real estate, it would be advisable to work with an experienced real estate agent. A good agent will provide valuable advice that will help you avoid mistakes and make a wise investment decision. Find a great agent here.