In the past decade, Florida real estate investing has seen a major uptick in popularity. This is in part because real estate investment can be used in a variety of ways. Some homeowners choose to rent out their investment property, while others focus on flipping undervalued houses for a profitable resale. Regardless of which route you take, investing in real estate is a smart financial decision for building wealth.
From types of properties to tax strategies, below is a beginner’s guide to a successful real estate investment.
Real estate investing 101
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Simply put, real estate investing
is the purchase, management, and rental or resale of property for profit. Most people associate real estate investing with the purchase of a home, but there are many ways to participate in the market. For example, an investor may choose to rent out or resell the property they purchase—or do both.
Considered its own class of assets, real estate is essential for well-diversified personal wealth. Overall, it’s low risk and offers an attractive return. As well, real estate has long been deemed a sound investment since property sale prices historically increase year over year
. Although the past two years have brought an unparalleled increase in real estate values—with a growth of nearly 30%—this isn’t the norm. On average, national real estate appreciation values range from 3.5-3.8% per year. Those who were fortunate enough to own an investment property in the past two years truly made out big. However, the typical growth percentage provides a safe return on investment.
Of course, working with a highly qualified real estate agent
is recommended not just for your investment purchase, but for sales as well. These trained professionals have industry knowledge that’ll help you make a successful investment and enhance your portfolio.
Types of investment properties
There are numerous kinds of properties to invest in. One of the main ways to make money on an investment property is by renting it. However, as a landlord, you’ll still be responsible for taking care of the property in terms of payments and maintenance. Another way to generate a profit on an investment property is by flipping it. This is when investors buy an undervalued property and then put time and money into fixing it so that it can be sold at a higher resale value.
To help you decide, below are some of the most popular rental properties
. Again, your realtor will be able to help you with investing in any of the following properties and advise you on which best suits your goals.
Most real estate investments are in single-family homes (SFH) since they’re plentiful and straightforward. Typically, investors rent out SFHs, but it’s not uncommon to sell them, too. Although SFHs have a higher cost per unit, they tend to appreciate strongly. Overall, an SFH is ideal for first-time property investment.
Multifamily properties are any piece of real estate with more than one liveable unit. Small multifamily residences contain two to four units, while larger ones comprise five or more. Multifamily homes do require a larger investment upfront. However, you can increase your income much quicker without raising the rent too high. Plus, they’re less competitive to buy.
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Condos and townhomes
Condos and townhomes are individual units that share amenities. Think of these as a hybrid between SFHs and multifamily properties. Condos and townhomes are great if you’re looking for minimal oversight. Some residences even provide maintenance work so that you don’t have to worry about it. The biggest challenge with condos and townhomes is that there are often rules and regulations made by the homeowners’ association.
When you think of investment properties, foreclosures aren’t what usually come to mind. However, these properties can be gems since they’re frequently sold below market value. As long as the property doesn’t have serious problems—like mold or vandalism—investing in foreclosure is worth the effort.
If you’re willing to put in some work, investing in a fixer-upper is a wonderful option. These properties typically need some TLC, but can be well worth the effort. Fixer-uppers also tend to be sold under market value, so are frequently a good deal for investors. The largest hurdle is obtaining a traditional loan, so you may end up requiring a private lender.
Commercial real estate
Commercial real estate is any property that houses a business. This type of investment property is very hands-off and leases can last several years. Nevertheless, undertaking this type of investment takes some experience. In essence, you rent out the space to a business such as a grocery store or hair salon. The goal is to find a business that best suits the space so that you don’t have to deal with extended periods of vacancy.
1031 exchange strategies
An important strategy to be aware of when purchasing and selling investment properties is a 1031 exchange
. This is a tax strategy in which you can sell one investment property for another, thereby avoiding the payment of capital gains on the initial property’s sale. A 1031 exchange is perfect for investors wishing to purchase additional real estate instead of cashing out.
It’s crucial that a 1031 exchange is completed correctly. If not, you may end up paying unwanted taxes on your initial sale. Once again, this is where having an experienced real estate agent
makes all the difference. Not only will they understand the laws and restrictions, they can also assist in determining your long-term investment goals.
Adriene Dauses real estate
If you’re ready to begin your Florida real estate investment journey, reach out to Adrienne Dauses today
. Adrienne is a highly qualified real estate agent with experience in property management. She’s also a true Floridian with extensive knowledge of both micro and macro trends within the state. Whether you’re interested in investing in Indian Rocks Beach, Belleair Beach, or Indian Shores real estate, Adrienne will help you every step of the way
*Header photo courtesy of Shutterstock