How to Invest in an Expensive Market ($500K+ Home Prices)
Summary
This BiggerPockets article discusses strategies for real estate investing in expensive markets, specifically focusing on how to make money with value-add projects and cashflow superchargers like short-term rentals. Hosts should consider value-add strategies such as flipping or the BRRRR method to increase potential profits and diversify income streams.
Key Insights
- •The BRRRR method (Buy, Rehab, Rent, Refinance, Repeat) involves buying a property, renovating it, renting it out, refinancing based on the increased value, and then using the equity to repeat the process, allowing hosts to build equity and potentially generate cashflow.
- •In expensive markets (defined as median home prices above $500,000), it's harder to find cash flow because rents often don't keep pace with property values.
- •Short-term rentals can act as a cashflow "supercharger" in expensive markets, helping hosts increase revenue and capture appreciation.
- •Flipping can yield 30-50% cash on cash returns in as little as six months, however, this strategy requires time and project management skills.
Action Items
- ✓Consider the BRRRR method as a strategy for generating cash flow and building equity, especially when the market provides cheaper properties that need work.Effort: mediumImpact: medium
- ✓Analyze your local market carefully to understand the time on market and holding costs associated with flipping properties.Effort: mediumImpact: medium
Watch Out For
- ⚠Flipping can be risky, especially given that properties may take longer to sell due to market conditions, and costs of materials and labor are increasing.
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