As a real estate investor, one of the largest objectives is to maximize real estate return on investment. In plain language, this means earning as much profit as possible from all property holdings, regardless of whether they are residential or commercial in nature.
Ways To Get A Real Estate Return On Investment
There are a few different approaches to earning a real estate return on investment. The first method is using a Short-Term approach.
In recent years, “flipping” has grown in popularity as a way to make tidy profits without holding homes or properties for a lengthy period. Real Estate Investors find distressed properties, such as homes or commercial properties that are in Pre-Foreclosure, Foreclosure, or available through a short sale to purchase at a deep discount.
Once a property gets purchased, the investor is free to make any needed, or desired upgrades and renovations to make it more marketable. When all updates and improvements get completed, they put it up for sale, ideally with a nice ‘mark-up’ in price that fairly compensates the investor for their time, effort, and expertise.
For example, “John REIProfessional” purchases a foreclosure home. For the sake of ease, we’ll say that he paid $100,000 cash for the house. To account for repairs and renovations, he’s set aside $25,000 to make improvements for a total investment of $125,000. After completing the project, he was able to sell the home for $180,000 – earning a profit – or return on investment of $55,000 for the flip.
The second methodology for attaining a positive ROI is by purchasing properties – residential or commercial – and making these spaces available for renting, leasing, subletting, or through owner financing. Rental Properties are an ideal way to generate a “passive income” on a monthly basis and pay back the investment costs of the property over time, instead of all at once, as is the case with property flipping.
Let’s use the same base price of $125,000 mentioned in the above example. The property has four rental units available for $1,000 each per month, so there’s a potential of generating $4,000 of rental income for the property in a month. If all units get rented or leased and paid as agreed by tenants, it will take approximately 32 months for the property to pay for itself. In the meantime, as the landlord or property manager, you collect the monthly rent revenues.
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