If you have your own real estate business, or are just starting one, you may be wondering how to distinguish yourself from your competitors. Given the crowded nature of the business, it can be difficult to make your operation stand out from the rest. This is especially so when you are starting out and have relatively less capital than other companies.
In these situations, it’s time to start thinking about your business strategy. Diversifying your investment strategy can be enough to give your company the competitive edge it needs to thrive. Here are a few quick suggestions that will give your real estate company the best chance at success.
Make a 1031 Exchange on Your Property
One thing you may not have anticipated when getting into real estate is the sheer cost of the expenses associated with it. Mortgage payments, repair costs and sales taxes can mount up quickly. And while mortgage payments and repair fees can certainly be frustrating, they are usually unavoidable. Taxes meanwhile, can be optimised to maximise the amount of profit you make.
If you are looking for a particularly high short-term reduction in outgoing expenses as you are establishing your business, 1031 exchanges are arguably the most effective way of doing so. Essentially, this means if you sell a property, and then purchase another property within 45 days, you will not be required to pay federal taxes on the sale for 180 days. This can be done multiple times, so you can defer payment of the tax as long as needed. This can be a great, creative way of improving your strategy, as it will give you substantially more capital to invest in the short-term. The tax can then be paid when your company’s finances are more stable. 1031 exchange case studies and examples demonstrate the efficacy of this method.
This technique does have a few stipulations, however. The properties you exchange must both be either commercial or investment properties. The property you buy after the sale must also be of equal or greater value to the one sold. Consider consulting with a commercial real estate agent, if you are unsure.
Focus on Rentals
If you are just getting started as a real estate investor, you will be naturally looking to grow your fund quickly. Even if you are already established, you may still be looking for a reliable, steady stream of income. Without adequate capital, you will not be able to purchase new properties, or in certain circumstances even cover mortgage payments on existing properties. If you are looking for a steady source of income, consider making rental properties a part of your investment strategy. This will automatically give you a reliable stream of revenue to cover your business’s expenses as it develops.
Once you have added a few rental properties to your portfolio, you can also use money from your rental properties to purchase new real estate in the future. Making rentals a key part of your investment strategy is thus one of the most effective ways of getting a quick source of income for your business.
There are a few salient points you should be aware of specific to working in rental properties, however. Naturally, since you will be looking to attract tenants, the home will have to be in a decent, liveable condition. You should consequently ensure that you have the necessary resources to make any repairs that are required to a property prior to renting it. Moreover, states tend to have strict laws regulating the practice of renting residential properties. You should therefore make sure that you are aware of these, and conform to them as required.
Identify the Best Value Properties
With adequate up-front backing, most investors can make money in real estate. The most effective investors, however, methodically identify the properties that will yield the best potential profit, and surgically target them. You may therefore consider only investing in the real estate with potential for a high resale value. These can be identified in many ways. For example, you can look for properties where the owners are looking for a very quick sale, or ones in locations which are rapidly increasing in desirability. Study current market trends, so you can develop an eye for the most promising investments.
You should consider your specific needs as an investor, too, and target properties accordingly. If you need a short-term cash injection, for instance, you may target real estate which can be resold quickly for a small profit. If you have less time restraints, you can alternately buy low-value properties, and carry out repairs to sell them on later at a much higher price.