How to Invest in Real Estate Next Year

November 6, 2022


It is no secret that there are many reasons to invest in real estate. From building equity and financial growth to diversifying your portfolio, real estate investing can yield significant returns. Real estate investment is for you if you wish to increase your cash flow, take advantage of tax deductions, or generate profits through rental income. Whether you’re a first-time buyer or a seasoned investor, there are many ways to approach this wealth-building endeavor.

While investing in real estate is a fantastic opportunity, it is not a one-size-fits-all pursuit, and most investors aren’t sure how to go about it. There are several different forms of investment that garner different results. Whether you seek to purchase a stunning Venice beach luxury home or wish to flip a less-than-stellar home for sale in Mar Vista, lucrative real estate investments await you. Here are some excellent ways to invest in real estate in 2023 that will help you build your equity.

Flip houses



Flipping houses is not for the faint of heart. There are no guarantees, but the payoff could be huge when flipping homes. This pursuit involves taking a rundown house under market value, repairing it, making it attractive to potential buyers, and then selling it for a profit. Flipping houses takes time, finesse, and patience but could amass significant returns. The element of risk is large, making this endeavor suitable for someone with serious funds willing to pay a mortgage without bringing in income simultaneously. Another way to negate some risk is by living in the home until it is deemed market-ready and is sold for a significant value.

Being a successful flipper means being efficient in finding bargain houses for sale in Venice. You want to spend most of your time fixing it up instead of finding the property. You’ll consider the property’s price, location, amenities, and sprucing needs before buying it. Ideally, the home will only require minor repairs. Before buying the fixer-upper, consult your real estate agent about whether they believe the Mar Vista townhome is a worthy investment that will yield a major profit once repaired and sold.

You will want to pay attention to the numbers when flipping homes. If you spend too much on renovations or aren’t able to mark it up enough to sell at a profit, you will lose money on your investment. Most investors follow the 70% Rule. The rule is to never pay more than 70% of the After Repair Value (ARV) for a home. The 30% left over is what you have for repairs, closing costs, and other overhead fees. To gain a better return, calculate the estimated cost of repairs and deduct those costs from your offer price. Meaning that your offer price will be 70% of the ARV, minus repairs. 

Note that there are two different approaches to flipping a house:

1. Fix and upgrade. This approach requires buying a worn home that will increase in value once you update it and make necessary repairs. Ideally, you’ll finish the project swiftly and sell it for more money than you invested, including all renovations and upgrading.
 

2. Retain and resell. This approach has nothing to do with fixer-upper properties. Holding and reselling is when you purchase a home in a quickly rising real estate market, keep it for some time, and then sell it for a significant return.

Buy a rental property


Investing in a rental property puts you in a landlord position. It’s important to think about whether you will be comfortable in the role. Landlords possess various responsibilities, including paying the mortgage, property taxes, insurance, maintaining the property, finding tenants, and addressing any issues that come up. It’s worth noting that if you’re not up to the challenge of being a landlord, you could hire a property manager to handle all of these details.

There are two different ways that rental property investors make money:

1. Rent is the primary way that landlords make a profit. The rental property’s location will determine how much rent you can charge. Even still, choosing the best rent can be challenging. If you ask for too much, you’ll lose tenants — charge too little, and you’ll lose money. One way to avoid these predicaments is by charging just enough rent to meet costs until the mortgage is paid off, after which the rest of the rent is converted to profit.
 

2. Appreciation is the other main source of income for rental property investors. If the property value rises, you could potentially sell it for a profit when the market is in your favor or take out a loan against the equity to fund your subsequent investment. While Venice real estate does tend to appreciate, there are no guarantees. So in lies the question: How much of a risk are you willing to take for the chance of reaping a major profit?

Real Estate Investment Trusts


While rental properties and fixer-uppers are a fantastic way to invest in real estate, they are not the only path available to you. A real estate investment trust (REIT) is an organization that owns, conducts, or finances income-earning real estate. A company qualifies as a REIT by distributing 90% of its taxable profits to shareholders through dividends. REITs avoid paying corporate income tax by doing this, whereas a traditional corporate structure would incur tax liability that would reduce shareholder returns.

Like regular dividend stocks, REITs are suitable for investors seeking consistent income, but they also offer appreciation opportunities. REITs invest in a multitude of property types, including shopping malls, medical facilities, office buildings, and residences ranging from student housing to single-family homes. Compared to other types of real estate investments, REITs have the advantage of being liquid assets, meaning a resource that can easily be converted into cash in a short period of time.

It is evident that there are several different ways to invest in Venice real estate, and you’re bound to find one that suits your investment goals. Your investment opportunity relies heavily on the amount of time, effort, and resources you can devote. If you need assistance deciding which investment opportunity is best for you, contact the Campbell Wellman real estate team. This esteemed Los Angeles boutique brokerage sells an array of properties in Venice, Mar Vista, and the Palisades. Call them today to find your next investment opportunity.




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