Real estate investments are definitely the most profitable investments. Just take a look at the stock market. It’s quickly approaching a bear market while the US housing market is going strong.
But while every real estate investor wishes to make the most profitable investments they possibly can, it can be a little bit difficult. Even though investing in real estate can be profitable, if you don’t take the right steps, you can end up losing money. To help you avoid this worst case scenario, we’ve put together 5 great tips to help you make the most profitable investments.
Tip #1: Think Outside of the Box
Making the most profitable investments really means making much more money than you are spending. Several real estate investment strategies can help you do this, but it all starts with your investment property financing of choice. There are two ways investors go about financing:
Related: 7 Easy Methods for Investment Property Financing
#1. You can pay for the whole price of an investment property in cash and rent it out to make positive cash flow.
#2. You can spend much less on buying an investment property but still achieve that positive cash flow from rental income.
The latter option can easily be done if you think outside of the box. Someone with $100,000 may see an investment property priced at $100,000 and simply buy it. But if you think outside of the box, you can take that $100,000 and use it as a down payment for either a much more expensive property that generates higher rental income thanks to its value or even multiple investment properties that provide multiple streams of income!
So instead of spending a ton of money to invest in real estate while getting less in return, utilize what you have as a down payment and get a mortgage loan to cover the rest. That way, you’ll be able to make the most profitable investments in real estate.
Tip #2: Rethink Your Current Rental Strategy
If you already own a rental property, making the most profitable investments this year could be as easy as changing your rental strategy.
If you are renting out your investment property on a long term basis, start thinking about switching to a short term rental strategy. Short term rentals typically make a higher profit per month than long term rentals. This is especially true if you turn your property into an Airbnb rental. Of course, you may need to invest in some furniture and electronics for your rental property to make it more appealing. But this small investment into your own property will not break the bank. With the right management, your Airbnb rental property could be one of the most profitable investments you ever make in your life.
Alternatively, you might want to switch from an Airbnb to a long term rental. Why? Well, it depends on where your investment property is located. When you bought your investment property, did you perform a neighborhood analysis to make sure that owning an Airbnb was more profitable in that area than owning a long term rental? If not, you may not be making as much rental income as you could be.
So, how do you know which rental strategy to go with to make sure you have one of the most profitable investments? Use a heatmap tool! You can learn more about this by reading: How to Choose Rental Strategy: Finding Income Properties Using a Heatmap.
Tip #3: Know Your Options to Make the Most Profitable Investments
For some, the most profitable investments are those that don’t require renting out an investment property. While rental properties are the best investment strategy as they are one of the lowest risk long term investment strategies, you can look towards fixing and flipping, for example.
The point is to find out which strategy will help you make the most profitable investments this year by weighing all of your options and the potential ROI you can get from each.
Related: What’s the Best Investment Strategy in Real Estate?
Tip #4: Know Your Limit
The best real estate investments to make are those that you can afford. Whenever you are buying an investment property for any purpose, there will be a period where you will have a negative cash flow. Whether you are going to be using this property for rental income or reselling the property and taking advantage of appreciation to make a profit, there will be a period where you will have to pay for the mortgage out of pocket. If you cannot afford your investment and this situation occurs, you will be left in a very difficult financial situation.
You want to make the most profitable investments and that cannot be done if you are losing money, or spending more than you can afford. Keeping in mind your financial status as well as rising mortgage rates will help you to refine the type of property you wish to invest in.
Related: How to Convert IDX Leads: Capture Strategies and Tricks
Tip #5: Do Enough Research to Make the Most Profitable Investments
While it is widely believed that real estate investing is a big gamble, this is definitely not the case. In fact, the most profitable investments are those built on reliable data rather than luck- data from a real estate property calculator. This must-have real estate investment tool allows you to research any neighborhood and any property before buying it. The tool will give you estimated data about potential expenses and rental income from the property.
So if you want to learn how to invest money wisely and make the most profitable investments, be sure to use an investment property calculator to find the best places to invest in real estate that have positive cash flow investments.
To learn more about Mashvisor’s real estate property calculator, click here.
Related: A Real Estate Investment Return Calculator for Buying the Most Profitable Properties
The Bottom Line
Just because the real estate market is doing well, that does not mean every investment will be profitable. Before you think about buying a new investment property or changing your investment strategy, you need to study the market. Studying the market will give you great insights into what is in demand at this time. Keep in mind that you must also study each individual property you are interested in. Know what expenses are expected of you and what income the property will bring. This is the key to making the most profitable investments in real estate.