Real estate is one of the oldest, safest, and most traditional ways to invest your money. I know what you’re thinking – the housing market crash was only a few years ago. I can’t promise that we won’t see another of its kind; however, investing in real estate isn’t just about winning. It’s about playing. In order to win in the market, you have to play the market. Fortunately, Chicago currently has a strong, sturdy market that is attractive to different types of investors. While buying land is a traditional way to invest your money, gut rehabilitations have really changed the game in major cities. Contractors are now able to refurbish an entire house in a matter of months while getting investors a short term, high-yield ROI. Here are a few reasons why investing in gut rehabs can be smart, safe play.
- A quick turnaround on your investment – 4-12 months – While many traditional stocks can take years to grow, a complete gut rehabilitation on a million dollar property may only take a fraction of a year. Great contractors should have extensive experience in flipping houses and be able to set expectations for a big picture schedule. Everything depends on where the rehabilitation is taking place, the scope of the project, and the timing of the market. Right now, Chicago has a strong real estate market with major job growth – this is great for sellers! Just take a look at your Zillow and Redfin app and you can see how quickly properties are being sold.
- You have the ability to balance your risk – When you invest in traditional stocks, you have the option to go risky with penny stocks, safe with government bonds, or somewhere in between with individual stocks. Real estate is no different. If you’re more of a gambler, you can buy incredibly cheap properties in up-and-coming areas. This may mean more extensive work on a property and a longer sale time; however, you can be highly rewarded if the market picks up. Additionally, you can always play it safer by investing in a flip within a more established neighborhood like Lincoln Park or Old Town. In doing so, you will need to temper your expectations a bit and know that while the risk is far less, the reward might also take a hit.
- Your primary risk is opportunity cost – If you throw $800,000 into a property hoping to sell it for $1M, worst case scenario, you should be able to quick-sale for cost at a $200k discount. You didn’t make a profit; however, you didn’t lose your money either. If you have a reliable contractor, architect, and real estate broker, you should be able to minimize cost while maximizing your sale price.
- Real estate is consistent – Even if there’s another housing crisis, as long as you have the option to hold onto your properties long-term, you will make a profit. A great way to equalize a potential loss is to rent out the property – while you won’t be making money, you will be able to tread water until a sale. It’s always been a safe bet to own land. More often than not, the land will be worth more than the building one day. As Mark Twain said: “Buy land. They’re not making anymore of it.”
Real estate markets always fluctuate and it’s important to know the risks involved. Any investment comes with a certain amount of risk. I can’t stress enough how important it is to hire reliable, experienced people to help with gut rehabilitations – they make all the difference.
Interested in investing in short-term renovations for profitable resale? Contact us to discuss joining our Private Equity Group.