Long Term vs Short Term Real Estate Investing

By on August 21, 2014

Deciding on long term vs short term real estate planning requires taking stock. Avoiding this tedious task is a self-fulfilling prophecy for failure. Now, a “guru” might encourage you to fail so that you learn your mistakes. But if you approach everything thinking that failure is alright, you are not going all out to achieve success.

Simple financial evaluation requires you to write down how much you are currently able to invest and what your needs are. Many people still feel that such a step is something that can be worked out with mental sums. So they totally skip it to save their time for “more important” stuff. If you have the bad luck to suffer a hard failure, you will know that planning is definitely classified as one of the “more important” stuff.

Let’s take a look at the long term first. When you do long term real estate investing, you have the ability to stretch out your profits. You are not looking for, as some might put it, a quick lotto win. One typical type of long term investment is to find a house or two and then rent them out to qualified tenants. The proven formula of using rental to cover mortgage repayments will then come into play.

Some people who have the ability to do skilled labor will buy a house at a great price and do some fix-ups before looking for a tenant. The industry term for such investors is “flippers”. They buy, improve, and sell. The process is like flipping something to it’s other side revealing a more appealing value. Hence the term “flipping”.

Others purchase houses that are basically ready for a tenant to move in. Sometimes properties come with existing tenants with long term contracts. This immediately eliminates the hassle and resources needed to find tenants to pay for your mortgage.

Depending on the cash available to you, there is another long term investment to consider. Usually when real estate investors start getting the hang of things and are looking strategies to scale things up, multi-family apartments start to look attractive to them. It presents them with something new to challenge themselves as well. Buying an apartment building is a sound investment. Apartment buildings come in a wide variety of sizes, so the amount of cash you have will determine what you can afford. But if you have got your hands on something really attractive, don’t be surprised to receive phone calls out of the blue from other investors wanting to have a stake in your investments.

planning for long and short term investingWith a small apartment building, you may be able to handle everything yourself. A large apartment building will likely require a management team and you need to factor that into your expenses. If you are going to take in partners, it will be wise to get partners who have the type of expertise or resources which you lack. For example, if you have no experience handling multi-family real estate, getting a partner who has that experience will benefit all parties.

But if you can’t and have to take on the whole job scope yourself, the rule of thumb is to calculate all expenses, like management and maintenance, so that you can come up with a fairly accurate profit calculation. You might want to keep costs low by taking on all operating activities yourself. But in many cases, outsourcing everything is well worth the money. You get proven experts to do your bidding. And you free up your time to find more investing opportunities for yourself.

When going with investing in the large apartment complex, do your research and find a well respected property management team. In the long run, it is likely to save you money. And above that, you save yourself from the burden of handling personal relationships with tenants, the confusing tasks of accounting your income and expenses, the huge headache of recruiting and firing staff, the tiring ongoing hassle of networking with vendors and suppliers, etc.

People looking at short term real estate investing, normally are looking for fast results. They want to accumulate money in the shortest time possible. It does have its risks however. As mentioned before, the term “flipping,” is used when a person buys a property with the intention of re-selling for a profit right away. It can have heavy rewards, yet there is risk that the property may not re-sell for the type of money that a person is looking for. There is no guarantee that the property will sell at all and then a new plan has to be put in place.

In this case you must have the knowledge, skills, and expertise to force your property to appreciate in value. You also need the marketing skills in increase perceived value. And sometimes, because of broader economic factors, a house might depreciate no matter what you do to it. These are due to factors out of your control. These are the dangers of going short term. At least in the long term, history have shown that real estate tend to appreciate in value.

There is another method that can be used for short term investing in real estate. Here you are not looking for immediate cash, nor are you considering holding it for a very long term. It’s called buying real estate stocks, REITs, and bonds. When buying these stocks and bonds, there is no aggravation of having a physical property to deal with. Any physical property is going to need some kind of hands on attention, like grass cutting or painting. With stocks and bonds, you just purchase and then calculate the best time to cash them in and look for another short term investment.

There is no correct answer to what is the best approach to real estate investments. It really depends on the individual. Some methods might work wonders for one, while they might not work for others. If you absolutely have no idea what is more suitable for you, remember that using your money to test out the market can be a costly affair if things go wrong. The best approach is to conduct an exercise to work out what suits you best before putting your money into the market.



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