Real estate has been an important symbol of wealth since the dawn of human civilization. You’re still able to open a company in the industry and make a living today. Here are a few tips to help you start your own business in the real estate industry.
Use Leverage Responsibly
Leverage can be both a great tool and a huge liability. Investing with leverage lets you purchase properties you couldn’t afford usually. That’s how you’re able to get your foot in the door in some markets.
However, you could end up in a bad position if the market doesn’t work in your favor. Understanding how your market’s performance can help you decide whether to take risks.
Using leverage can help you expand a business way faster, though. So, it’s worth using some of it to close a few deals if you’re certain they’ll be profitable.
Pick Properties in Hot Markets
Where your property is located can be the biggest factor affecting its value. Some areas support $1 million dollar price tags on literal shacks. Other places wouldn’t support a price tag higher than $10,000 on the same property.
If you’re able to buy something before values go up, that’s ideal. You can capitalize on the market’s appreciation when everyone’s home value increases.
Look for areas where there’s going to be plenty of future development. New development tends to increase the value of existing properties, boosting investors’ profits.
Utilize Rental Income to Convert Properties Into Assets
Letting your properties sit on the market without tenants is a waste of money. You’ve still got to maintain the mortgage payments on them, so they’re costing you monthly.
You shouldn’t let them sit there without generating some sort of revenue. Turning them into rentals would let you collect housing money from your tenants. That’s a stable source of passive income most of the time.
Waiting for it to appreciate won’t add to your overhead if you’ve got tenants. It’ll actually add to your business’s bottom line since they’ll contribute income.
Open a DST to Decrease Your Tax Liability
Selling a property usually creates a taxable event. You’ve got to pay taxes on all your capital gains if you’ve held the property for less than a year.
You can avoid paying taxes by using a 1031 Exchange, though. Delaware Statutory Trust companies let you exchange properties without increasing your tax liability.
Exchanging properties by using this method can minimize how much you’ve got to pay at the end of the fiscal year. When you’ve got less liability, you’re able to keep more of your revenue as profit.
Saving Up for Down Payments
Getting a down payment together can be difficult if you’re just starting a business. A lot of states offer down payment assistance programs if you’re a first-time homebuyer.
You can purchase a home using funds from them. Then, you’ll be able to build equity by living in the house for a while. Renting out a room would let you build equity even faster, too.
Once you’ve built enough, you can use your equity as a down payment on another property. Repeat that process by building equity in rental properties. Then, use that equity to further expand your property portfolio.
Flipping Homes for Profit
The other way you’re able to generate a profit in real estate is by using arbitrage. Buying the home for less than you’re able to sell it is a valid business model.
Look for homes surrounded by properties that are higher in value. You can do a little work on them to get them up to the local average. It doesn’t take a whole lot of work to make them profitable if you’re in a high-value neighborhood.
Sometimes, it’s even more profitable to sell homes than it is to rent them out. Do a little math to see which would be the best option in your circumstances.
Operating a Real Estate Company
Running a business is great because you’re able to make all the important decisions. However, that also means you’ve got to learn how the industry works. Mastering its mechanics will take a little time, but it’s going to be worthwhile.
