Investing in a property requires thinking ahead, and you are here, which means you’ve taken a step in the right direction. Not only is it important to consider the type of property, but also how to get out of it – be it to sell for a nice gain, or to back out if the deal is going south.
Many are finding the turnkey property buying method to be among the most effective, and that should be explored when considering your options.
Three Things to Do with Your Property Once It’s Bought
Owning property is not rocket science, so if this list seems simple it’s because it is.
- Cash out
Holding it provides cash flow for your life and that of your heirs. Cashing out is a means of keeping the property but refinancing so that you can take all of the money, still have the property, and not pay any taxes like you would if you sold it without reinvesting into a 1031 Exchange.
When selling you can do so to a family looking for a nice home, an investor, or a turnkey provider. Each has a different method, but the end result is that you have successfully made your exit strategy. When you sell, do not forget to take the profits and put them into a larger property so that you can avoid taxes.
Before getting into that, though, not all properties make money.
How to Profit When You Exit
When holding the property for life it must have positive cash flow. This means that it is putting money into your pocket rather than taking it out. As one famed investor says, ‘if it costs you money, it’s not an asset; it’s a liability.’
Cashing out requires equity. If the home is going down in value because of the neighborhood, the economy, or because you haven’t done any maintenance in the past seven years, the bank is not going to risk its own money to give to you. The same goes for selling it to a private buyer or investor.
This is why location is so important.
When most people think of location they only consider the city, not the neighborhood. They think of a high-end town like Westbury, New York, but not the fact that Westbury has two different parts, and they are completely unlike.
People also think of Los Angeles, which has areas that young people want to move to, and others that they don’t. This matters when it comes to cash flow and appreciation.
If no one wants the property where you invest there will be no cash flow. The same goes for appreciation. It’s as simple as that. Not long ago there were properties selling in Detroit for less than the price of a used car, but the investment wasn’t a good one because there was no demand for the homes and they required further investment.
Demand is predicated not just by price alone. Factors include:
- Job Growth
- Local economy
- Population size/trends
People can’t live where they can’t afford, and that means they need cash flow for themselves so that they can pay their rent. Also, no one wants to live where the education is terrible. They want good public schools, and they also want at least one college nearby so that their children won’t have to live far away just to have a decent life.
The point is that people have to want to live somewhere for it to be worthy of your investment, or you won’t be able to create wealth or cash flow.