Investing for Income: How to Boost Your Profit Potential

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Are you tired of investing in stocks, bonds, or mutual funds? Are you looking to diversify your investment portfolio but aren’t sure what to do next? Perhaps it’s time to try investing for income, which will allow you to capture interest on your investment while also potentially providing you with capital gains when the value of your investment increases over time.

Whether you’re new to investing or an experienced investor who has been looking to make more money off of your investments, there are plenty of ways to increase your profit potential and make the most of your investment choices.

Property Type


When you decide which properties you’re going to invest in, focus on long-term gains. You don’t want to buy and sell things that won’t have a consistent cash flow year after year.

Properties that can provide rents on a monthly basis are ideal—and most often apartments, office buildings, condos, and townhouses will fit into your income portfolio. If you need help finding properties that meet these criteria, an experienced broker can help.

Location


Investing in income-producing properties is a great way to start diversifying your income streams. The key is to find properties that offer stable and predictable cash flow, like apartment buildings or student housing. Use these tips to increase your profit potential when investing in income-producing properties.

Cash flow analysis


In short, cash flow analysis helps you determine whether an investment will provide adequate income. To do a cash flow analysis, start by compiling three separate sets of financial statements. They should include your historical results, projections and market or competitor information.

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These figures allow you to calculate monthly income and expenses, as well as ratios such as return on equity and debt service coverage ratio. When you have gathered all of your numbers, analyze them against what other companies in your industry are doing to help identify opportunities that no one else has seen.

Vacancy


A great way to increase your income is to invest in a rental property. If you have good credit, are working towards achieving a stable career and have some money set aside, then investing in real estate can be a great way to supplement your income.

It also opens up opportunities that can make you even more money down the road. While building up equity and paying down debt, you could potentially receive money from renting out rooms or even hosting an Airbnb at your property if there’s extra space.

Purchasing Process


When you’re investing in income-producing properties, it’s important to be a disciplined buyer. Be thorough when researching properties and make your offers only after you’ve completed your due diligence.

Though we live in an era of online investors, there are still plenty of deals out there that don’t receive much attention from sites like Zillow or Trulia. Contact real estate agents and get a feel for how property owners are currently offering their homes.

Let it sit!


If you’re wondering how long to hold onto an investment before selling, we can make things easy for you: Don’t sell it at all. Just let it sit there, earn interest, and grow in value. We like to think of investments as long-term assets—the longer they stay invested, the more time their growth can compound and increase.

Types of Rental Properties


There are two main categories of rental properties—multifamily and single-family. Multifamily properties include duplexes, triplexes, fourplexes, condos, and apartment buildings. Single-family rentals include houses and townhouses. Typically, multifamily units can earn more per square foot than single-family units can.

However, single-family homes are often easier to rent out due to their location in higher-demand neighborhoods and because they’re not a hassle for tenants who have kids or pets.

After-Repair Value (ARV) Formula


ARV is what your home could be worth after fixing it up. Typically, you should use 80% of ARV when determining how much you’ll invest in a fixer-upper. In other words, if your home has an ARV of $200,000 and you plan on investing $80,000 in rehab costs, you’ll be spending 20% of your funds on structural fixes (or about $4,000 per room).

Top Strategies For Investing In Residential Properties – Conclusion


You may be asking yourself if residential properties are a good investment, or even wondering how they can help you make more money. The truth is that if you’re willing to put in some effort, understand what you’re doing, and have some money saved up, investing in residential properties can be a very profitable option. However, it’s important that you research your options thoroughly before jumping into anything too quickly as there are many pitfalls associated with property investing.