The prospect of investing in real estate brings a whole variety of options for potential investors looking to make their way in the most stable investment market now. The idea that real estate investing can be a short-term or long-term investment appeals to all types of investors. Investing in real estate for the long term is a very popular choice amongst investors around the United States. The possibility of purchasing an investment property and having it for years might sound unappealing to those looking for instant profit from real estate. However, it is important to point out that even when investing in short-term rental properties, patience and knowing when to sell or buy is an important quality for all real estate investors.
Investing in real estate for the long term is not so difficult or complicated. To fully understand what is long-term real estate investing, one must understand the different types of long-term investing in real estate. This includes rental properties, buy and hold properties, commercial properties, and more. If you are an investor looking to make money in real estate for the long run, which in turn means the chance of making serious profit from your real estate investment, keep reading.
Investing in Real Estate for the Long Run
Rental Properties
Rental properties are the most common form of real estate investing. It gives real estate investors the chance to purchase a rental property while being able to recoup some money from it from rental income. This income is particularly required for those who are taking loans to purchase properties. The rental income can be used to cover the cost of mortgage payments amongst others, leaving the real estate investor with marginal profit and a property.
So how does real estate investing in rental properties make more money in the long run? The answer is quite simple: it’s about understanding the market. Investing in the right location will result in higher real estate appreciation that can lead to serious profit, all while getting rental income in the years of having the property. Taking the example of traditional rental properties: most might think that they are in fact a short-term investment because they will be used for profit in the form of rental income. However, if a real estate investor purchased an income property for $150,000 in 2015 and has been renting it out for $1,200 per month for the last 3 years, then that investor has already made $43,200 in rental income after tax. Furthermore, the prospect of appreciation is still there. If the appreciation of that property in 3 years has reached 15%, then the property is now valued at $172,500. In conclusion, the rental property has yielded a profit of around $65,400 in just 3 years of rent and appreciation value.
Related: Choosing the Right Investment Property for Your Short or Long Term Rental
Buy-and-Hold Properties
There isn’t much a difference in the concept of buy-and-hold properties and rental properties when investing in real estate. They are practically one and the same with rental properties being a subcategory of buy-and-hold. However, what if a real estate investor isn’t cut out to become involved in the rental market? This brings a whole different scenario in the long-term investment strategy. The idea is that searching for a rental property is very different from searching for a buy-and-hold property. Rental properties require certain aspects and qualities to become desirable and in demand for potential tenants. Buy-and-hold investments generally need less maintenance and spending. One of the major costly differences is furnishing, maintenance, and taxes. Buy-and-hold investments are purchased depending on appreciation predictions. The purpose is to sell them years later for a higher price, which means that they don’t need the specifications of rental properties.
This type of investment is actually a serious moneymaker for those who invest in multiple properties. The real estate tycoons are mostly known for this type of investing in real estate. It is easier to manage, cheaper, and timesaving. However, to ensure the success of this investing strategy, a real estate investor must find great deals that are in growing market locations with high appreciation values. Consider a real estate investor who has saved up $200,000 for investing in real estate in Tampa, Florida, which has a fast growing real estate market. The investor wants to purchase 3 studio apartments, each worth approximately $60,000. Research shows that the appreciation rate is 5% per year. This means that if the real estate investor holds these properties for 6 years, then they will have a value of around $78,000. This equals a total profit of $54,000 for the 3 studio apartments over 6 years only.
Investing in real estate and making money from it in the long run requires an in-depth understanding of the real estate market. Without studying the market in the investing location, the whole investment could be a waste of time and money for the investor.
Related: The Buy and Hold Blueprint: Qualifying an Investment
Commercial Properties
This type of investing in real estate is a fast growing one. The US commercial market is huge, and joining commercial real estate investing can lead to huge returns. Commercial real estate properties are leased to businesses, which can range from tiny little stores to shopping malls. While there’s an opportunity to rent out to big businesses and get significant cash flow, commercial investment property vacancies can last longer than residential ones. Nevertheless, one of the main reasons to invest in commercial property is the increasing population in the US. The fact that there is more and more people moving from bigger cities to smaller ones in search of better job opportunities or a cheaper lifestyle is causing smaller cities to expand. Investing in commercial real estate property in such an economically booming city will result in a profitable investment through rental income or selling the property when demand is high.
Related: Commercial and Residential Real Estate Investing Tips
Conclusion
Having a vision to be one step ahead is the prime quality of long-term investing in real estate. There are different forms of it that will suit each investor’s preference and ability to achieve what he/she expect from investing in real estate. Success, however, is entirely dependent on the investor’s capacity to analyze, understand, and take risks in a particular market.