It is widely acknowledged that investing in property is accepted as one of the most stable investments globally. In fact, an article about global real estate investing stated, “investor sentiment toward real estate is projected to remain positive… [and] of the more than 600 investors surveyed, 52% said they will increase allocations towards real estate.“
Buying an investment property
It is said that real estate investments have produced many of the world’s wealthy people, so there are plenty of reasons to think that property is a sound investment, according to a recent article.
There are several different ways to profit from real estate investments:
- You can buy an existing property and rent it out as a source of income.
- The next option is to purchase a property off-plan. In other words, a property developer will sell you a housing unit before it is built. The rationale behind buying a unit off-plan is that it will be substantially cheaper than purchasing a home that has already been built. Once it has been built, you can either sell it on for a profit, or you can rent it out as one of your monthly sources of income.
- Should you wish to invest in expensive real estate, but you cannot afford the cost of maintaining one, you can always consider purchasing shares in global companies that own and manage high-end apartment blocks, etc.
- Finally, you can participate in residential redevelopment. In other words, you purchase run-down properties, renovate them, and resell them very quickly.
What is residential redevelopment, and how do you turn a profit when redeveloping houses?
In a nutshell, residential redevelopment or house flipping is the purchase of a home or property with the intent to sell it for a profit. Actually, profits from flipping real estate come from buying a house that needs repair and fixing it up before reselling it for a profit.
A house that needs renovating or redeveloping will often be sold at a discounted price due to the fact that the house is either in a dilapidated condition and needs major repairs or the house needs to be sold quickly due to relocation or pending foreclosure. In theory, the investor will then turn a profit by selling the house soon after it has been renovated at a higher price. The reason why flipping houses can be profitable is that the average homebuyer does not always have the time, skill, or funds to renovate the property themselves.
Financing a property redevelopment
Furthermore, traditional mortgage lenders do not always fund a home that needs significant renovations. Hence, the purchaser or investor has to fund the repairs out of his pocket.
If you are buying a property that need repairs and you’re going to live in it and use it as your primary residence, there is a home loan program that can help. The FHA’s 203(k) loan is good news because you can now take out a Federal Housing Administration (FHA) insured loan to purchase a house and renovate it. It is well-known that foreclosed homes and other homes standing empty draw crime into the neighbourhood and lower the adjacent property values.
In 2014, there were so many foreclosed homes on the market that the FHA lifted its anti-flipping rule under certain conditions:
- The buyer and seller need to prove that there is no relationship between them. In other words, there can be no identity of interest between the two parties.
- The investor has to provide documented evidence justifying the high price differential if the sales price is more than 20% higher than the purchase price.
- Not all home loans insured by the FHA are eligible for financing the purchase of a house that is to be renovated and quickly sold on.
While you can make a living from flipping properties, it is vital that you are cognizant of the fact that there is no easy money. Yes, you generate a profit from residential redevelopment; however, you need to look carefully at the cost-effectiveness of the property that you purchase, renovate, and resell.