Another aspect to consider when investing in property is whether you, the investor, are skilled and can do repair work in a home. Today there are thousands of REO properties for sale, real estate owned properties – another term for bank owned properties. Many of these properties need work.
I have often thought a consortium of tradespeople would be an ideal investment group; a person who knows drywall, a plumber, an electrician, a tile person, and maybe a roofer. Between these people and someone to put up the initial amount of money, the group purchases property, fixes it up, and then puts it on the resale market. (This would have to be an LLC, limited liabiity corporation, with exit strategies defined for group members and legally enforceable. Consultation with an attorney is advisable.)
The key is to purchase the property at the correct price, and with today’s pricing, making offers would be the name of the game. Doing the repairs in a timely manner is critical. The sooner repairs are done, the sooner the property can be put back on the market. If you buy correctly, the property can be priced in the mid range for the area so the property does not languish on the market. The sooner the profit can be made the quicker the group can move to the next property.
A 1031 Tax Deferred Exchange may not work in this instance because the property has not been held for any appreciable period of time. Short term capital gains tax would have to be calculated prior to determining profit. Again, here is where a good accountant who also understands the workings of 1031 tax deferred exchanges is necessary.
Think about a team and who you need on your team to make investing in property profitable and fun! Check professional people with good credentials, too many properties have been fixed up by rank amateurs. Your goal is to have your property stand out and sell immediately!