Single Family Houses – Strategies for Profitable Investment
The Single Family House (SFH) is usually considered the safest form of real estate investment. The main reason for this is that there is a very large market for these houses. They are popular with investors but also with ordinary owner-occupiers. So financial institutions have no problem lending on them – in fact 100 percent leverage is not unusual.
For this reason the SFH is considered as a good "way in" to real estate investment for those who are just starting. Here are five strategies for generating profit. Your investment plan can and should include all of these – but preferably one at a time.
· Buy and hold – you buy the house simply to rent it out. Provided you have done your sums properly, this can bring regular cash flow along with amortization of the debt. But of course, you need to learn about maintenance, tenant management etc. and how to avoid the pitfalls of renting.
· Buy Low – Sell High. To use this strategy you need to find a house that is going cheap because it is in need of repair, but in a neighborhood with good sales potential. The price you pay for it needs to be low enough to allow you to cover your repair costs and still make a healthy profit. This way you can generate very healthy cash with just two or three deals a year. However, the process is extremely time consuming and can mean your capital is tied up for several months at a time.
· Flipping (Buy Low – Sell Low). This way you find a property where there is a prospect of an immediate resale at a higher price. Sometimes it is actually possible to close the purchase and resale simultaneously, making an immediate profit. Of course the profit is not as high as it would be using the Buy Low – Sell High method, but you can do several deals a year without tying up your own capital, and end the year much better off.
· Leasing. Find a property you can lease for a good price. You then sub-lease it at a higher rate. This puts you in a very favorable cash-flow position. Of course, you do not hold the title to the property, which means that you do not get the benefit of any appreciation in the value of the property itself. But the big benefit is that you get the cash flow without risking much up-front cash of your own.
· Buying Options. When you buy an option on a property, you buy the right to buy or sell the property, without having the problems of maintaining or managing it. Unlike with leasing, you do get the benefit of property appreciation. In fact this is a very low-risk method of investment, and can be exceptionally profitable. It can be a very good idea to use leasing and options together – this way you get the benefits of both!
Each of these strategies can be very profitable, whether used singly or in conjunction with others. This is not to say that you can be guaranteed to make a massive profit on your very first venture. There is a lot to learn and making mistakes is part of the learning process. But here, more than in almost any other field, perseverance can bring big rewards.