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For many Hoosiers, real estate investing could be considered uncharted waters. Investing in real estate may be unfamiliar, however, doesn’t mean that it shouldn’t at least be considered for your portfolio.
Real estate investing in its simplest terms is making more money than you spend from real estate. This can be done via the purchase, sale, or lease of land & structures. Real estate generally breaks down into two primary categories: residential & commercial. You can engage in real estate in two ways, Actively or Passively. Today we will just be looking at the surface of active methods of investing and broadly cover the most typical approaches people take.
1. Fix & Flip Investments
HGTV style flipping is the most active, hands-on way to participate in real estate investing. House-flippers buy a home that is underpriced, then add value through renovations & remodels. The house is then sold at a higher price for a profit. According to theory, it is pretty simple. However, fixing a home requires more money than the purchase itself. Another consideration is the time you need for a flip, the time you might not have. It can be a long process, one that requires home improvement market knowledge to come out on top. The success, the financial burden & pitfalls of a flip falls entirely on you. Flips that wind up being profitable can seem like losses for a time. You must be patient if you’re going to commit to a flip.
A good realtor with experience in flips can go a long way in consulting you if this is the investment path you would like to take to get started. If you want to see some flips in the Indianapolis area, Good Bones on HGTV is a great place to see how the process works in a condensed & easy to digest way.
2. Residential Rental Investments
Rental properties are a long term investment, but like flips, they also require hands-on management. Cash flow is earned in the form of payment from tenants. An Investor’s goal is always to achieve a reliable income stream, but they must understand it hinges on a lot of work or delegation of responsibilities to ensure smooth running operations.
First, you must decide what type of rental you want to offer, Long or Short term. Each comes with its own strategies, as well as sets of pros and cons. We will get into all of that in another post. But to start here is what you need to know, a Long Term Lease is the more typical 6 months+ rentals you may be familiar with. Short term leases examples are Air BNB, VRBO, and traditional vacation rentals.
Tenants & Management
The first hurdle to overcome is finding tenants for your property. Your property type and available resources for finding tenants will dictate the ease or difficulty of this. Property occupancy comes with several management related duties. Depending on the number of units that you own, property management duties can become a part-time or full-time job.
For a fixed or percentage fee, a property management company can be contracted. They come in when an investor doesn’t want to handle the management of their properties. This transforms the rental into a more passive investment. It takes a very unique set of skills to manage multiple properties, and that is one of the reasons we see so many property management companies. However, most companies we see are in the business of managing traditional rentals, many requiring a one year lease. Many of these companies will be selective about what type of property they are willing to take on as well.
In Indianapolis proper, Hoosiers have the option to use an Airbnb specialized management company. Qualified properties are managed as an investment and handle the headache the way a traditional property management company would. If you would like more information about having a property managed as an Airbnb do not hesitate to contact me.
Something that is vital to remember is what laws are in play in your county or city. Here in Indiana, we had HB 1035 pass in 2018. This Bill protects the Hoosiers abilities to use their homes for short term rentals. Always check if you need a permit or a variance if this is the style of investment you would like to pursue.
3. Commercial Investments
Commercial properties are in their own league. Typically these real estate classes require capital several magnitudes larger than residential opportunities. They also come in a variety of zonings. These are going to be county/city dependent. Changing zoning can be a challenge as well. These investments have the potential for massive payoffs but can also come with large risk. Typically commercial leases are multi-year, securing an Investors income beyond the short term.
You can own anything from Farms to Retail to factories. This class of real estate is massive and each subcategory has its own nuances that need to be explored. Indiana has a very diverse set of property types and potential opportunities. One just has to know what to look for an where. At Century 21 Scheetz we have experts in a variety of commercial ventures, so if you’re considering commercial as an investment avenue, please reach out to us.
What’s Next?
If you have decided that you would like to know more about getting started in Real Estate investing, please feel free to reach out for a consultation. I would love to have the opportunity to speak with you & see if I can help you with your real estate buying, selling or investment needs, & help turn your American Dream into a reality.
Until next time,
Your local expert,
David Cardoso
