Investing in real estate has 2 primary models
- Cash flow
- The cash flow model works by focusing on creating regular income, usually monthly rent.
- Equity growth
- The equity growth model works by focusing on what the property will be worth in a certain time period with the expectation that it would be sold at a profit at that time.
Any investment property can produce both cash flow and equity growth. In most cases a good investment property will be one or the other. There are all kinds of uncontrollable factors that can affect both models such as:
- Changes in the economy
- Unemployment rate
- Fluctuations in the stock market
- Natural disasters
- Legislative reform
- World trade deals
Both models have their pros and cons. It takes skill and knowledge to know how to evaluate which one a property would fall into, if any or both.
Who should invest in real estate?
If you have $25,000 dollars sitting in the bank that you can use, it would be wise to invest and get started. Patience is important. It takes time to build up your portfolio. When done properly it will grow exponentially faster than any other investment.
Before investing in any property you’ll need to prepare yourself with allied resources. This is a big part of your business plan and will help you keep most of your ROI (return on investment). In your allied resource you should have at least 2 contractors for each of the following:
- General handyman
- Cleaning service
- Flooring contractor
- Sewer repair expert
It’s likely that you’ll need help from one of these every year so be prepared. The alternative is to have a well connected real estate agent that has an extensive database of contractors for whenever you need them. It’s also best to shop for investment properties with agents that have these types of connections. To go a step further, working with an agent that also invests makes the most sense.