Short term property investment refers to purchasing properties with the intent to sell within 1-3 years for profit. This strategy requires careful selection of properties with high appreciation potential in rapidly growing areas. Key factors for success include leverage through low down payments, negotiation skills to buy under market value, and savvy exit timing to realize largest gains. Executed properly, short term strategies can achieve 20-30%+ annualized returns, far exceeding long term buy and hold. However, they also carry higher risk without long term cash flow or appreciation as a safety net. This article explores best practices for short term property investing.
Leverage finances for maximum return potential
The use of leverage is paramount in short term property investing in order to maximize potential returns in a compressed timeframe. Taking out mortgages with low 20-30% down payments gives the highest return on capital deployed. Transaction costs like mortgage fees and closing costs will eat into profits on a percentage basis more significantly with lower investment amounts. Having financing pre-approved also provides a competitive edge in making quick, compelling all-cash offers on discounted properties.
Target rapidly appreciating neighborhoods poised for growth
Careful market research should identify neighborhoods with major new infrastructure projects underway or planned, like public transit expansions, stadiums, corporate relocations, etc. These macro growth drivers lift property values across entire submarkets over short time horizons. On the micro level, target specific properties with renovation/redevelopment potential and below market rents with room to push higher to the next buyer.
Aggressively negotiate purchase prices below fair market value
There is little margin for error on short duration holds, so properties must be acquired at sufficient discounts to allow for 20-30% price appreciation upon resale just to break even after transaction costs. Exploit hesitations of retail home sellers through persistence and credibility displays. Prepare backup offers at higher prices and then negotiate down from those inflated levels. Saving just 5-10% below true market value can make or break the viability of a project.
Time resales to market cycle peaks when selling fever is highest
Match resale listing strategies to seasonal market patterns when buyer competition reaches apex levels, typically spring & summer months. Follow resale listing prices closely in the target neighborhoods and pounce when year-over-year comps demonstrate peak pricing acceleration, signalling the optimal timing to take profits.
Short term property investment delivers substantially higher returns versus buy & hold strategies but requires specialized skills in negotiation, leverage, market timing, and risk management. Carefully selecting high trajectory neighborhoods and undervalued properties with fix & flip potential can lead to 20-30%+ gains when executed proficiently.