Global Advice Center

Investment Properties: Short Term

Posted on Apr 11, 2010 06:12:52 PM

Investing in property for the short term takes less of a time commitment than investing in it for the long term, but it also takes a lot more risk tolerance. A good way to look at it, then, is that if you’re already an advanced investor in real estate and you have enough financial stability to warrant a risky investment, you can target property as a short-term investment tool. On the other hand, if you’re more risk averse due to personality or long-term financial needs, you should consider a long term strategy instead.

The opposite of long-term investing, buying investment properties for the short term has the following benefits:

1. Higher volatility means you won’t be bogged down by the average profitability of the category you’re investing in (in this case, real estate). You can take a gamble and potentially buy low and sell high only a year or two later, potentially doubling your money in the process. But a result this extreme is rare, and again, note that volatility is a double-edged sword because it also means you could sell your property when the market is against you–for instance, in a down economy or during a housing bust.
2. By being willing to take a short-term view, you can nimbly step into and out of the game when the market favors you most. For example, you can wait to act until the housing market takes a dive, then buy a home in a specific area, make some renovations over the next 1-3 years and sell it for a tidy profit once the market comes back.
3. You also won’t be tied down geographically, temporally or financially for as long.
4. You won’t have to deal with as many of the maintenance or personnel challenges that you would as a long-term investor.

But in order to succeed at short-term property investment, you’ll need to do a number of things right. These challenges are important for long-term investing as well, but in the short term they will have an even larger impact on your profit margin (or lack thereof):

1. You MUST get your timing right. “Timing the market” is truly a type of gambling, but one that can result in success. But do your research and be careful.
2. To get the largest net gains from flipping property in the short term, you’ll need to make improvements to the structure and/or lot. This means remodeling kitchens, landscaping, adding a deck, renovations, etc. Check local listings and talk to your network (formed earlier through your landlord and property owner’s associations) to find out what home improvements will net you the best returns. You need to add value based on the location and price range of your future buyer, so don’t assume that adding an in-ground pool is as valuable in Maine as it is in California.

See the flip side of this idea in Investment Properties: Long Term, and consider reading retiree blogs to get a feel for activities and investment ideas that work well into the longer term.