In some ways the very opposite of making money online would be to invest in real estate, however, when you compare the two methods of making an income there are some huge similarities – mostly linked to the aspect of building an asset, such as a blog, and leveraging this asset to create passive income; or investing in a property then leveraging this asset in the form of monthly rent (plus appreciation) to generate passive income.
A challenge a lot of online entrepreneurs have is that they are putting too many eggs in one basket rather than diversifying their income-generating strategy to find a balance between the online and physical world.
It’s wise, as an online entrepreneur particularly if you’re lucky enough to experience rapid growth, to consider diversifying your revenue strategy to incorporate a more stable and traditional asset such as investing in property – to give you the financial security you desire; as, unlike a brick and mortar home you own… everything on the web is a little unsteady, all it takes is one major security breach, some bad publicity, or even a significant outage to put you in very choppy waters. Therefore, with all the money you’re making from your online venture, it might be worth siphoning off some to invest in real estate which is solid and future proof.
This article is going to give some general inspiration for people dipping their toe into the idea of buying an investment property. It’ll help you think about where to find a property, what to buy, and who to reliably rent it out to.
Where To Buy
Many amateur property investors choose to head to an auction, thinking this will be the best place to grab a deal, and to an extent they are right – however, there’s often a reason why the property is being sold at auction rather than by a realtor. If it’s as simple as a financial issue where the bank has foreclosed on the house and their corporate policy is to always sell at auction – that’s fine – but think of buying a car at an auction, often times, sellers will put their car through auction knowing it has some hidden faults or damage that you might not spot on a quick once over in the auction room.
Furthermore, it’s very easy to get caught up in the psychology of the situation at an auction, where you can spend a lot more than you were planning to on the basis of the competitive and almost hypnotic spiraling of the price as you battle to “win” the in-demand property. A better option, particularly if you are a newbie is to find sellers directly and negotiate with them directly. They can sometimes be a bit trickier to find than going to an estate agent that will offer a brochure, set up appointments, and so on – but in this internet age, it’s very possible to find people willing to sell their homes direct.
The other aspect to consider in terms of where to buy is the physical location; try not to limit yourself to where you know – there are huge opportunities around the world and it’s important to look at the current trends, such as brexit, in order to spot fantastic opportunities.
What To Buy
There are several factors to consider that will require significant research; such as whether the area is up and coming or if it’s going downhill fast; aspects to consider include crime rate, the quality, and proximity of local schools, transport links, and social amenities. If you can get your hands on some insider insight, such as from the local council, and find out a major transport hub or large business park is going to be built in the next five years – that would be an obvious positive, however, if you were to find out a new sewage treatment was opening up in a few years time it would be a different story. The point is, do your homework, as whilst it might feel onerous and perhaps even costly – it will pay off in the long run.
If you’re looking at buying a property for investment purposes, then there are two main options. The first is to find a rundown property that you subsequently renovate and flip; this way, you can make anywhere between $5k and $100k within a matter of months… it’s a very popular option for people with experience in building, plumbing, electrics, and decorating; and some of the wealthiest people in your circle of friends might be tradesmen more so than white-collar workers, due to their ability to flip properties in this way.
The alternative to flipping properties is to buy a property and rent it out. Ideally, you want to find something like a 5 room flat for sale; as you can then rent out each individual room at a premium. Whilst it might be a little more hassle to find tenants, when you think about the maths, consider this. Let’s say your mortgage is $1,000 per month. You could probably rent out the property as a whole for $1,400 making a tidy profit of $400… however, if you were to rent out each room, for $500, this would equate to $2,500 a month making a huge profit of $1,500 per month.
Who To Rent
There are three core markets; students, professionals and those on benefits.
The wonderful thing about students is that you can get their affluent parents to act as guarantor the rent and any damage to the property that might occur during their tenure, and most importantly, a lot of times with student properties there is expectation that the student will pay the rent up front for the whole year or at least a semester (around three months) which is good news from a cash-flow perspective. The downside, of course, is that get a guarantor of students – pay up front and so on; the downside is they are messy disrespectful could disrupt neighbors and so on.
The pros of professionals is that they are the most likely group of people to keep the house tidy, conform to the rules, and pay their rent on time – however, there are plenty of professional people that lose their job and end up falling behind with rent, and actually, a large proportion of eviction action is pursued in court against ‘professional’ tenants. Moreover, professional people are more likely to leverage the leniency of the law when they do just a little bit of research to find out how much tenancy law is written in the favor of the tenant rather than the landlord. Professional tenants are great when they are great, but of all three groups could actually be the most risky choice.
The perception of people on welfare benefits, rightly or wrongly, gets a bad rap; and yes there are some social disadvantages to consider in terms of this demographic, however, it’s not realistic to tarnish everyone with the same brush – there are plenty of wonderful people that are in receipt of welfare that will take good care of your property. The main benefit when renting to someone on benefits is that you can set it up so the government w