This is a debated question. Some people say the stock market and some say Real Estate. I have come to my own conclusion this year and it is a complete 180 degree turn for me. Until this year I had been a believer in the stock market. I had some success investing and trading but nothing like the returns I have seen from my foray into real estate investing. I’m talking about flipping houses in Central Ohio. I recently completed my second flip property in Columbus Ohio and they have both returned over 30 % on my initial investment.
The stock market YTD 2015 has returned exactly 0% , well a little more than that, specifically the Dow Jones has returned .55 % which might as well be 0. So to sum it up I’m actually losing money in the stock market. This is based on investing in the Dow Jones average as a whole. Some individual stocks have returned more of course but to the average guy or gal picking stocks are not our profession. I do not want to risk my hard earned money on picking stocks. If I were more educated in the selection of stocks maybe I may feel differently but real estate is something that anyone can understand.
Here is how investing in real estate flips work. You find a property that needs some fixing up, is selling below the market value in the area, buy it, fix it and sell it for the value of the area. It really is that simple. There is some work that is required on your part like knowing what homes in the area are selling for, what the repairs are going to cost, having a good contractor if your not planning on doing the repairs yourself, and of course having the finances to make it happen.
Let me take a minute and address the last point in the above paragraph. Finances are always at the root of an issue when it come to investing in anything however, Leverage is our friend in real estate. When you buy a home for 42000.00 that After Repair Value is 92000.00 your out of pocket investment to secure this property is around $12000.00 for an investment loan, Lets say it takes $20,000 to fix it up you have $32,000 in total cost. I am including holding cost like payments, insurance and utilities. So now you have $32,000 in a property worth 92, 000. When you sell it you will make $30,000 because you have to pay off the loan which in this example is 30,000 and cover your down payment of 12000 and the repair cost of 20000. There is some selling cost in this involved, generally if you figure 10% of the selling price you will be safe which covers commissions, tax and fees. So left is $20,000 in your pocket. Now remember what is invested here, we actually had to pay $ 32000.00 directly out of our wallet. In this example there is a … are you ready… 63% return. If you are fortunate enough to have the cash to buy it outright and not use leverage you’ll actually make less of a profit because in the above example your using the banks money. These returns are not guaranteed but they are possible.
An investor friendly real estate agent can walk you through all of this and help you achieve these type of returns. Investor friendly Real Estate agents have knowledge and the tools to assist you like banks who make these loans, contractors who do this work and the ability to find these properties. Do you know any success stories like the example I used above. please leave your comments.