If you are currently looking for a way to diversify your investments, then you should seriously consider real estate as an investment opportunity. When people talk about investment diversification, they are usually talking about spreading their investments across multiple stocks, bonds, and mutual funds. At the same time, there are other types of investment opportunities that can be utilized as well, with one often overlooked example being real estate.
Because real estate is a relatively stable market in most parts of the country, many people are looking to get involved. At the same time, the barrier to entry historically has been relatively high. Today, it is possible for many people to invest in real estate, as long as they understand how they can use this to reliably create wealth.
How Can Real Estate Be Used to Create Wealth?
There are multiple ways that people can use real estate to create wealth. The most direct way that people can make money with it, is with rent. Rental income allows people to invest in real estate opportunities, without having to drain their bank accounts paying for the mortgage. Before getting involved in the market, it is important to take a look at the rental income potential of a property. While the overall goal of rental income is to make a profit, people are going to need to be able to first use the rental income to pay their mortgage, utilities, real estate taxes, and homeowners’ insurance. Therefore, it is important to make sure the rental income will be able to sufficiently and reliably cover these expenses.
The other way that people can create wealth and the market is through capital appreciation. Appreciation is the idea that property is going to gradually increase in value over time. For example, it is not unusual for proper to increase in value by around 5 percent annually. Of course, this increase is going to be different in different parts of the country. Therefore, it is critical for anyone looking to invest in property to examine the capital appreciation value of any potential investment opportunities before buying. This can be seen as similar to people increasing their wealth through the stock market. Although it is possible that property may decrease in value, this is unusual in the world of real estate.
Finally, another important way that people can make money in real estate is through a process known as “leverage.” Leverage is one of the most popular ways that people make money in real estate today. It is the practice of using borrowed capital from a mortgage lender to purchase and/or increase the return of an investment. For example, even if someone only put 20 percent down on a property, they control 100 percent of that property as long as they continue to pay off their loan to the mortgage lender. This is how someone can acquire multiple properties in a short amount of time, and make money off of all of them through rental income.
Investing in a Halfway House
There are lots of investment opportunities in the world the real estate; however, one of the examples that have become popular during the past few years is the establishment of a halfway house. For those who might not know, a halfway house is a place where people in need can go after they are released from an inpatient rehab facility. This type of location offers people recovering from drug and alcohol addiction an environment that will allow them to live and reintegrate with society on a timeline that allows them to avoid relapse, and build the skills they will need. One of the major problems that people struggling with addiction face when they are released from any inpatient rehab facilities, is they end up in the same environment that led to their addiction in the first place. The halfway house is a safe place where individuals can go and maintain their sobriety.
It is critical for everyone who wants to open a halfway house to understand how they work. Anyone who runs a halfway house will need to file for a certain business status with the Internal Revenue Service, maintain certain licensing credentials, and make sure they set up partnerships with local Inpatient rehab facilities. It is also important for halfway houses to make sure they keep their occupancy rates high if they would like to cover their expenses and make a decent profit. Therefore, many people who run a halfway house set up partnerships with reliable inpatient rehab facilities so they have a steady flow of patients as they are released, rather than requiring the recently released patients to find a halfway house on their own.
It is also important for anyone running a halfway house to offer other opportunities to their renters, such as drug and alcohol testing, job training, and potential employment opportunities. This will make the halfway house more attractive to inpatient rehab facilities, often increasing the rent they can charge for their beds. Halfway houses are not only good for the community but are also a great way to make honest money.
A Breakdown of the Profit Difference
To understand the difference in profits when comparing traditional renting methods and those that can be reached through investing in a halfway house, please consider the following example.
If you have a 4 Bedroom 2 Bath House, with a Mortgage of $1800, you could rent this home to a family for $2600 a month. With water usage at $90 a month, electricity at $350 a month, and gas at $90 a month, you would only make a total of $270 a month in profit.
Were you to instead convert this same house to a halfway house, you could have 2 individuals in a room, paying $600 a month, which would be a total of $4800 before your mortgage and utilities are paid for. This would net you a monthly profit of $2740, and a yearly profit of $29640.