As you begin to look at your family and think about how to plan for your family’s future, diversifying your financial investments and creating passive income that takes little maintenance is a good strategy.
One investment opportunity that the average investor often overlooks is real estate. While interest rates have continued to climb, real estate is still a good investment idea as homes appreciate over time at a higher rate than inflation.
In fact, inclination historically lasts for a couple of years, and the risk of recession isn’t as significant as it seems. In the last 100 years, recessions have occurred about 19 times and lasted an average of 10 months.
At the current inflation rate, which is less than 8% and about 3X the rate of the previous years, things cost more. Items such as gas, food, and oil cost more, which also impacts the cost associated with delivering goods, causing the price of every consumer good to increase in costs.
Additionally, as inflation increases, lenders are also put in a vice. The Fed, the regulatory agency that controls the prime rate, raises the rate. This affects the money banks and other lenders borrow from the Fed to service their loans.
That means that as banks have to borrow at a higher rate, it passes those costs to borrowers, making securing financing more challenging and costly.
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Benefits To Real Estate Investing
Suppose you’re wondering about the benefits of investing in real estate. In that case, those range from creating a passive, predictable income, good returns on the investment, tax breaks and advantages, and diversification in your investment profiles.
Also, real estate provides more excellent rates of appreciation than inflation rates, making real estate a perfect way to hedge against the cost of living increases that may impact your family budget.
In case you need to become more familiar with investing in real estate. You can seek help from Molly Sims at RE/MAX to help you understand the benefits and your options regarding real estate investments.
Types of Real Estate Investments
The most typical way a family invests in real estate is through a strategy known as buy and hold. A buy-and-hold is the standard way of home ownership. That is, a person buys a home, pays down the mortgage debt, and sells once the house has accrued equity.
Equity in home ownership is defined as the difference in what you owe on the home and the property’s value if you sell.
There are alternatives to buy and sell as a strategy, and some of these options could yield your family sizable gains. However, some options require a long-term plan, others require sizable capital, and others may have an easier entry point than others.
Fix-And-Flip
Fix-And-Flip is the process of buying property, often below market price, investing some time and money to make renovations, and quickly getting the home back on the market for a higher sale price than what you purchased it at and the cost of renovations.
Flipping property can be a labor-intensive project that yields incredible returns. For example, purchasing a home that is $25,000 below market, investing $30,000 in renovations, and reselling the home could net $100,000 over the original purchase price.
The one thing to be aware of with flipping is that you need to understand the process of home construction or be able to budget for a contractor and the local market trends that dictate how much you can mark up the property for resale.
Flipping Real Estate Contracts – Wholesaling
Instead of doing the heavy lifting of buying, renovating, and reselling a property like in flipping homes, you could consider flipping real estate contracts, in other words, wholesale real estate.
Understanding how to flip real estate contracts is simple.
The process goes like this; find a seller motivated to sell but not interested in doing the necessary renovations. Also, the seller is not interested in working with typical real estate agents but wants or needs to sell the home quickly.
The wholesaler would agree to a contract with the seller that allows the wholesaler to transfer the purchase contract to a second buyer, typically a cash buyer.
For their efforts to secure the deal, the wholesaler is paid an assignment fee that is in the range of 5-10% of the purchase price.
Wholesaling doesn’t require much capital, typically a deposit once the purchase contract is agreed upon, and as long as the agreement is executed, there’s no financial risk.
Rental Income
A longer-term strategy to make investments that set up your family’s financial future is to buy a property and make their rental units.
Rental income provides a monthly and stable yearly income from paying rents and leases.
This long-term strategy offers the investor an opportunity to make monthly profits, have someone else pay down the mortgage’s debts, and gain equity as your rental properties appreciate.
There are ways through real estate to create a positive financial future for you and your family, either in the short-term, like by flipping real estate or wholesaling, to building long-term wealth through buying and holding or passive income through rental income.
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