If you’re considering investing in real estate, you may be looking at a number of different types of properties. While property type is important, what’s perhaps more important is to look at properties in terms of whether they’re a short-term investment or a long-term investment. Each presents its own risks and rewards, and the ideal real estate portfolio should likely include both. For now, let’s focus on short-term investments.

For short-term investments, you typically want to look at your local real estate market. There are a number of different reasons why local properties are the best option for this type of real estate investment.

What’s the Difference?

What exactly is the difference between a long-term real estate investment and a short-term one? With a long-term investment, you’re purchasing property you don’t intend to resell in the immediate future. This means you plan on renting the property out or occupying it. A short-term investment, on the other hand, is one you plan on selling soon. You’ve likely heard the term “flipping” or “house flipping.” There are a number of different TV shows involving flippers. They purchase a property, repair and upgrade it, and then resell it for much more than their initial investment.

These short-term investments do often carry more risk, but the rewards are often much larger and more immediate. For example, say you buy a property for $100,000 and put $75,000 into the repairs, which take three months. You then sell that property for $300,000, netting you a nice $125,000 profit. On the other hand, if you purchase a duplex and rent each side for $1,000 a month, it’s going to take you over five years to reach that $125,000 mark, and that’s assuming that both units are continuously rented.

Why Stay Local?

With long-term investments, you don’t necessarily need to be near the property. Many people invest in apartment complexes or other multi-family dwellings in other cities or even in other states. They may visit the property before they purchase it, but then they hire a property management company to handle the day-to-day operations. The management company handles rental applications, maintenance, and even upgrades and repairs. The owner simply sees their net profits (rental income minus the management company’s cut and cost of any repairs, utilities, etc.) deposited into their account every month.

These investments often operate the same no matter how close they are to the investor. Many who invest in rental properties don’t want to handle the daily tasks involved, so even if they live five minutes from one of their properties, they may hire a management company.

With a short-term investment, however, there are more risks and more work to be done. You will want to make certain the contractors you’ve hired are doing quality work and that the final product is coming together as expected. You’ll need to visit the property regularly to make design decisions such as picking out paint colors, flooring options, and planning out the landscaping. If you’re doing some of the work yourself, it’s even more important that you don’t have a long commute to the job site.

You Know the Market

Short-term investments can be hard to make in other areas if you don’t know the market. If you purchase a house to flip in an upscale market, but don’t use high-quality materials and finishes, the house may never sell. On the other hand, if you buy in a cheaper market, but put in expensive marble counters, heated bathroom floors, and other luxury features, you may have to price the property too high, again leading to it sitting on the market for months. Knowing the market is one of the most vital parts of a short-term investment.

Purchase Mortgage Notes

One of the downsides of flipping is that you do have to invest a good amount of money, and because you never know when a property will sell, there’s always some risk involved. One way around this risk is to invest in local mortgage notes. This means you’re basically buying a short-term mortgage note, which means you now receive the mortgage payment. These notes are often short-term investments that pay back your full amount within about 12 months. The interest rate is usually between five and ten percent, so you also get to enjoy a nice amount of monthly income.

Investing in mortgage notes may not bring in the tens of thousands of dollars that flipping a house can, but it is a much safer investment. It also requires you to do much less work. You don’t have to do any renovations, hire a management company, or do anything beyond purchasing the mortgage note. It’s a passive source of income, and that’s very attractive to many investors. Even if you do enjoy flipping, investing in these mortgage notes can be a way of generating the income needed to finance those flips.  For more information on Greater Milwaukee note investment opportunities, inquire with Ryan’s Buying!