Congratulations, you have taken the first step in real estate investment with the decision to invest! Real estate investment in Houston is hot and has the potential to yield high return – if you prepare and execute a proper real estate investment strategy.
Your real estate investment strategy should be twofold:
Step 1: Should you Flip or Landlord?
Step 2: Use Hard Money or Not?
Both flipping houses and investing in rental property in Houston carry considerable risks along with the reward. It is important to consider the difference between flipping and landlording and the pros and cons of each before making a final decision on which real estate investment strategy is right for you. Also important to consider is whether or not hard money is the best financing option for your real estate investment project.
FLIPPING (BUY, FIX AND SELL)
You may have heard many amazing stories about the profitability of flipping houses which have inspired you to consider this option for yourself. As you may know, flipping houses involves the process of buying, fixing and reselling the property for a profit.
Profit from flipping houses will occur in one of two ways:
- Price appreciation due to a hot housing market
- Price appreciation due to renovations and capital improvements
Profit does not come without risk, so it is important to weigh the pros and cons before jumping in.
Some Pros of Flipping Houses in Houston
- Potential to make a quick profit – sometimes 2 or 3 times the purchase price
- Become knowledgeable about real estate, the local Houston real estate market as well as construction and unanticipated costs
- Increase your network for future real estate investments
Some Cons of Flipping Houses in Houston
- Losing money instead of making a profit due to unanticipated expenses, holding costs, higher taxes/losing profit to taxes or difficulty selling
- Stress as your constant companion throughout the process
LAND LORDING (BUY, FIX AND HOLD ON)
While the goal in flipping a property is to fix and resell in the shortest timeframe possible, landlording involves a much longer time investment. As a landlord, you will also forgo a quick return on investment for a long term residual income.
As with flipping, land lording also carries a list of pros and cons.
Some pros of land lording
- Real estate value increases over time – as the value of the property rises, so does your income potential from leasing the property.
- Owning multiple properties can provide a steady stream of income.
- No pressure to sell immediately
Some cons of landlording
- Tenant management and legal issues
- Longer time to appreciation
- Market fluctuations when ready to sell
Hard money is the common financing method used in the real estate investment industry to purchase and repair a distressed investment property for the purpose of flipping or land lording. It can be an expensive, but valuable way to obtain the cash needed to invest when more traditional financing cannot be obtained. Hard money does not conform to conventional underwriting standards and provides real estate financing for the repair of the distressed property in addition to the purchase cost. Because the hard money loan amount is based on the value of the property after repairs versus the “as-is” value, borrowers can access a much higher amount than what would be available through more traditional financing.
3 things to know about hard money loans
- Most hard money loans are short-term – they cover the time it takes to repair and refinance or resell. Extensions may be possible, but costly.
- Credit score and liquid assets will still be used to determine eligibility.
- Hard money loans are typically considered “same as cash” and can be obtained in shorter time frame. This allows you to purchase quick sales such as foreclosures and distressed “as-is” cash properties.
If you are considering a hard money loan for your real estate investment project, contact us and we will connect you with a Hard Money Lender who can help.