Whenever there’s a lot of movement in the real estate market, there are buyers looking to get in and sellers looking to maximize their profits. The current active real estate landscape is no exception. Whether you’ve been thinking about the purchase of an investment property or want to maximize the value of an existing investment, these strategies will help you understand your options and connect with the professionals whose guidance you need right now.
Buying an Investment Property
The current active real estate market offers many opportunities to tap into increased equity in a current property in order to acquire an investment property. In addition, projected increases in the post-COVID rental market promise to usher in a period of unprecedented opportunity for investors in markets throughout North America.
If you are thinking about acquiring a new property or are considering converting an existing space into an investment property, there are a number of things to consider. By taking a systematic approach, you’ll give yourself a better chance of success, both in the short and long term.
Choose your strategy
It’s important to know how you’re going to invest and what types of terms you want to consider for the properties you choose. The following are two primary strategies that most investors use:
Buy and Hold
A buy-and-hold strategy involves maintaining a property long-term and renting it out to tenants. The terms of rental for a buy and hold property could be any of the following:
- Short-term rentals for vacationers through platforms like VRBO or Airbnb
- Seasonal rentals, especially in coastal or resort areas
- Long-term rentals of a year or more, with tenants who use the property as their primary residence
Fix and Flip
A fix and flip investment involve the purchase of a home that is priced below market value, one that is poorly maintained, or both. The flipper then works to renovate the property for maximum value and sells it quickly for a profit. Timelines are tight and carrying costs can add up, so it’s important to have a good handle on remodeling prices along with resale potential.
Decide on management
If you’re handy around the house and willing to live the landlord lifestyle, you may want to take on the management of your real estate investment property yourself. If not, or if the property you’re investing in is located in another city, you may want to consider professional property management. Professional property management may also make sense in the case of short-term rentals with frequent turnover between renters.
A property manager can ensure that your investment is properly marketed and that potential renters are vetted through a rigorous approval process. They’ll handle onboarding and ongoing maintenance concerns in exchange for a percentage of the monthly rent. This can be a good option if you have little experience
Consult on taxes
As with any home purchase, there are a variety of tax implications associated with investment property ownership. Talk to your CPA or tax advisor to find out what types of expenses could result in tax savings in your case. Learn more about the types of records you need to keep and how to maximize the tax benefits of owning an investment space.
Maximize your investment
Work with a real estate professional to find out what current rental rates or home values are in your market so that you can ensure you are making the most of your investment. An agent or broker can also help you figure out what value-added improvements you can make to ensure that your investment property’s value is optimized.
If you’re looking to build a portfolio of properties, you may want to consider pulling some of the equity out of your first property with an equity loan or line of credit in order to finance subsequent acquisitions. Here too, it is a good idea for you to sit down and crunch the numbers with a trusted financial advisor and with a lender who specializes in refinancing options.
Selling an Investment Property
If you have an existing investment property and would like to take advantage of today’s higher home values to cash out, it’s a good idea to talk with a trusted real estate agent or broker. They can help you figure out what you can expect to get for your property and what improvements you may want to make to ensure the best possible return on your investment. In addition, you’ll want to do the following:
Consult on taxes
When you’re selling a property, you may have to pay taxes on the profits you’ve earned. In addition, if your tax strategy has been built around income from a current property, it will need to be adjusted going forward. Talk to your tax advisor or financial planner about your options before you initiate a sale.
Working with tenants
If you have tenants in place, you will need to communicate with them before, during, and after a sale. Check the terms of their current lease to find out what kind of wiggle room you have for marketing and showing the rental property. Your options may include any of the following:
Wait for lease expiration
It may make sense to wait until the current lease expires before selling the investment property. That will give you a chance to thoroughly clean the home, make needed repairs or updates, and market the home without tenants in place.
Sell with tenants
If you trust your tenants to properly maintain the home and to stay away during showings, you may choose to sell with the tenants in place. This can be an advantage if you are selling to another investor who wants the property monetized on day one of their ownership.
Sell to tenants
If your tenants are interested, you may want to coordinate the sale of the property to them directly. They can either get a traditional mortgage or you may want to work out an owner-financing or rent-to-own arrangement. This can be an especially good option if you have long-term tenants whom you know would enjoy staying in the property.