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The Magic 8 Ball Says... Part 2

January 3, 2011 - Updated: January 3, 2011

Magic 8 BallDear Magic 8 Ball, where shall I invest my money?

Yes we all want to know where to invest but with all the different types of investments out there, it’s easy to get lost and start shaking an 8 Ball for the right answer. So where shall you invest your money? Only you can answer that. If you read my last blog post, it provided some simple questions you need to ask yourself before you can determine what investment is best for you. Click Here for Part 1 of The Magic 8 Ball Says…

Once you know what type of investment you are comfortable with, you won’t need the magic 8 ball anymore. Throw it out and read the different types of real estate investments below.

 

The Fix & Flip *Medium Risk, High Gain, Lots of Work

The fix and flip is a very popular form of real estate investing. Many contractors and tradespeople make the move to becoming Real Estate Investors through the Fix & Flip method. This form of investing has a medium risk factor. Do your research before entering this investment. You know better then your real estate agent as to what your costs will be so crunch those numbers. You can make a lot of money with the Fix & Flip, but you can also lose a lot. You have to be good at what you do and having the right connections to Fix and Flip a house.

Pros:
Potential for large short-term gains.
Cost savings if you know how to do the work yourself.

Cons:
Higher Risk Factor.
Need to invest a lot of capital.

The Appreciation Flip *Little Risk, Medium Gain, Little Work

The appreciation flip is simple. Find a property that closes in a few years’ time, put in as little down payment as possible & sell the condo before it registers. This is low risk investment since you have so little capital invested. Your chances of losing money are very low but since this type of investment is also speculation, you might not make much money either if the market takes a turn. The challenge is finding the right developer & location that you can trust to turn the area into a thriving community.

Pros:
Little capital is needed.
Generally speaking, a much higher ROI then leaving your money in a bank.

Cons:
Your money is locked until you sell your suite.
Be prepared for closing costs if no buyers are found before the closing date.

The Cash Flow Rental *Little Risk, High Gain, Lots of Work

We all know that if you buy in bulk we have savings. The same applies to rentals. If you can get a house and have a few families renting out different areas, you are more likely to get a positive cash flow. The more units you have in your real estate investment, the better off you are of getting a good positive cash flow. The downside is that these properties are expensive to come by.

Pros:
You get a steady stream of income month over month while at the same time paying off your mortgage.
A very safe investment since you are dealing with multiple renters so you will always have money coming in even if one or two leave.

Cons:
A large investment is needed. Many times you are better off investing away from the downtown core to lower the expenses.
Dealing with multiple renters means more headaches. A property management company might help ease some of the headaches.

The Appreciation + Cash Flow Rental *Medium Risk, Medium Gain, Medium Work

This type of investment is very popular. So popular that it is now becoming harder and harder to find. The rental increase has not gone up as much as the price of homes so it is important to do your due diligence before investing in the Appreciation + Rental Income property. It’s all about Location! Location!! Location!!! The closer you are to downtown, the higher your appreciation will be. However, positive cash flow is more attainable when you go out of town. A middle ground must be found so you can get a good appreciation for the money you invest + attain positive cash flow.

                Pros:
                You get a steady stream of income while have the potential for great appreciation.

                Cons:
               
Hard to find the right property.
                First year rental might not result in immediate cash flow due to rental competition.

The Furnished Rental *High Risk, High Gain, Medium Gain

This is an interesting type of investment that has high risks and high returns. The good news is that competition is almost non-existent in this field. With the Furnished Rental, you buy a suite in a high demand area (specifically in hotels or near the downtown core), you furnish it with everything from a soap to TV’s, and you rent it out at a much higher price. There is a demand for this type of service because it is the middle ground between renting a condo and staying at a hotel.

                Pros:
               
Very little competition.
                High rental income.

                Cons:
               
Smaller target market.
                You lose money when it is vacant.
                Generally speaking the rentals are for a shorter term.


Tagged with: magic 8 ball investing condos appreciation roi cash flow
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