Approaches To Making Investments In Cheap Real Estate That Investors Should Know
Many investors ponder about buying a cheap house. They could resell it for a bigger price after renovating or lease it to tenants at a lower price than costlier houses, still gaining nice income. But is it always a good strategy? We’re considering in this article why it can be good and why it can be bad. Also, we take a glance at other options to invest at a low cost.
Is cheap real estate always good?
That depends on such factors as location (and its perspectives like uprising or decline), condition of the real estate object, a criminal situation in the hood, and a possibility of appreciation & depreciation.
Cheap housing has the biggest cost rise percentage on the market (compared to mid-market and high-market offers) on a yearly basis, it is completely understood that buying something at lower cost now to resell it at a higher cost in the future is a nice idea. But thinking of such an opportunity, you have to consider several more factors:
- What are your expected cash flow and gross yield? When a price drops at some property that does not mean rental rates drop equally. You could win bigger cash on cash return by holding and renting such property than costlier options if you buy it in a good neighborhood and in a nice condition.
- Appreciation potential. If you calculate it as a positive one for a particular object, then buying some of the cheapest houses for sale would be a good idea. Otherwise, in the case of depreciation, it will be hard for you to resell the property to gain profit, so you should refrain. Appreciation is feasible the most when you buy an undervalued object or one located in a fast-growing location.
- Could you buy more than one property? Sometimes, instead of an object with a cost of $300,000, you could buy three objects with a cost of $100,000 each. While you also have lower rent in each, the total cash flow can be higher than if you held one property. Also, you do not hold all eggs in one basket. If you take a bank loan to buy, you’d pay lowers sums of monthly installments in the case of temporary vacancy of some of such objects compared to paying one in a high-cost object.
What are the cheap property cons
On many real estate investors’ websites, you can find a list of cons of investing in a cheap property. Most often, when its price is below the market, it means the following:
- A property is a fixer-upper. Whilst it is often possible to live in such a real estate without any renovations (for a while), the condition of requiring repairs can avert many good potential tenants and generally lower the cost of living in it. That’s not speaking of such extremes as shaky and dangerous property, which cannot be rent without serious renovation done upfront. So when you’re thinking of such an object, you should always calculate its full cost – that would include the renovation cost and time. Also, a fair share of fixer-uppers might be too expensive in routine maintenance, which’s why their price has been dropped to sell them simply to get rid of a bad asset. On the positive side, don’t forget that you could deduct from taxation thanks to capitalization and further depreciation.
- If the neighborhood or town is depressive or criminal, buying even a cheap property there is a bad decision. Firstly, the price is likely to decrease further. Secondly, you will have a problem with finding reliable and timely paying tenants.
- If a neighborhood is only under development and it has nothing but newly built houses, it may take years to gain a solid infrastructure to attract no less solid tenants there. Are you ready to pay for the house through all these years?
Other options of low cost investing besides of buying
If you're interested in the issue of how to buy land cheaply to resell it, you might consider other investment options, too (because holding land might be too expensive). Such ones are REIT and ETF.
REIT is a real estate investment trust. Basically, you invest money in a pooled fund, which uses this money to buy various objects of real estate to gain profit on them. This can be done by means of renting, house flipping, or simply holding-and-selling. Most modern REIT organizations in the US have a very low entrance threshold (starting with $500) and pay 90%+ of the income to their investors (because of the features of their taxation). Basically, you give your money to someone so they use it to run and manage properties. Yet, you’re fully freed from any of such daily hustle and bustle. This is another type of passive income, like received from a bank deposit, only with bigger profits. ETF (exchange-traded fund) is an organization that buys, holds, and manages assets of REITs through their shares. Investing in ETF is feasible on par with REITs, as their most part is publically traded organizations.
Surely, you could invest in various securities or valuables besides ETF or REIT but this won’t be investments in real estate anymore (we’re talking in this article only about real estate investments). What REIT and ETF are attractive for is that you can spend from no to little money to enter this market. In addition to gaining a passive income by receiving dividends, you could also gain on reselling these securities at a higher price.
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More about DGY
DGY is a real estate investment and property management company. Our experts have an impressive experience in turning businessmen into smart real estate investors. We collect limitless opportunities throughout the world’s best real estate markets and help our clients implement the best deals. We take care of all due diligence and customize documentation while your income grows. We also provide you with property management services so you can forget about the tiresome maintenance of several objects and entrust this process to professionals.
Investment advice and recommendations
DGY is an investment company that takes care of every client and helps them become successful investors. With the help of an investment experience and a well-thought plan, we will help you examine the market, choose a strategy specifically for you or your business, and calculate future costs to start making money with real estate investment.
In order to invest in real estate, you should consider how you will run your management in Ukraine. DGY will help you eliminate all possible pitfalls at an early stage as a personal project manager will be assigned to your case. They will assist you in choosing the project according to all required objectives.
DGY Investments takes care not only of purchasing property but also renovating an existing one. With the help of a thorough plan and estimating, we will thoroughly prepare a property for sale. Our professionals evaluate an investment property and create a strategy that includes the costs for renovation, possible taxes, fluctuations on the market, etc. Therefore, our clients are able to resell the renovated properties in Ukraine with more than 15-20% profit from the initial price.
Before our clients decide to deal with real estate investing, they consult with our experts concerning details such as the necessary documents needed to purchase a property and successfully run all the processes connected to it.
Therefore, if you are eager to invest in Ukraine, it’s essential to have all the paperwork done correctly, and that’s the moment when our team of experts takes care of this step. DGY Investments helps investors buy real estate property, manage the paperwork, start preparing relevant documents for purchasing realty in Ukraine, and close the deal successfully.
Real estate investment opportunities in Ukraine
When an investor decides to invest in real estate in Ukraine, the most affordable way to attain stable passive income is through buying residential real estate. Investors can expect to receive a regular monthly payment from their tenants at a fixed monthly amount, unaffected by inflation or other unforeseen circumstances. The amount of rental income will vary depending on the size, type of property and location. For example, buying an apartment in Ukraine’s capital Kyiv is beneficial to investors due to offering a large working population, central location and affordable prices. Hence, the minimum price of renting a decent one-bedroom apartment in Shevchenkivskyi District will be around $1000 per month in 2021, followed by Pecherskyi District with a cost of $850 per month. Besides, investing in real estate in Ukraine annually brings clever investors up to 15% of yield, attracting many business people every year.
Properties for investments in Ukraine
Ukraine has a giant sector for real estate investing. Businessmen who come there all over the world often choose between investing in residential and commercial properties. The main advantage of buying property in Ukraine is the affordability of prices on the houses and apartments. For instance, if you invest in real estate in a historical district, a luxurious apartment will cost you around $80k only.
How to invest in Ukrainian Real Estate
In order to invest in Ukrainian real estate, you should take into account a list of crucial factors. The first one is to choose what kind of realty you are going to invest in: residential or commercial. It is vital as it should comply with Ukrainian real estate law. The second tip is to identify the purpose of purchase in order to make a strategy for the property. For instance, you may purchase the property for your own use or buy it for lease. The next step is to calculate the taxes and what kinds of taxes are payable during the purchase, owning, or selling. Also, to invest in real estate properly, you should keep in mind currency control rules in Ukraine to sell a property and get a higher profit.