Buying real
estate is about more than just finding a place to call home.
Investing in real estate has become increasingly popular over the last 50 years
and has become a common investment vehicle. Although the real estate market has
plenty of opportunities for making big gains, buying and owning real estate is
a lot more complicated than investing in stocks and bonds.
Basic Rental Properties - Luciano Ruocco Blackpool
This is an
investment as old as the practice of land ownership. A person will buy a
property and rent it out to a tenant. The owner, the landlord, is responsible
for paying the mortgage, taxes
and costs of maintaining the property. Ideally, the landlord charges enough
rent to cover all of the aforementioned costs. A landlord may also charge more
in order to produce a monthly profit, but the most common strategy is to be
patient and only charge enough rent to cover expenses until the mortgage has
been paid, at which time the majority of the rent becomes profit. Furthermore,
the property may also have appreciated in value over the course of the
mortgage, leaving the landlord with a more valuable asset. According to the
U.S. Census Bureau, real estate has consistently increased in value from 1940
to 2006, then proceeded to dip and rebound from 2008 to 2010.
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| Blackpool Gazette Luciano Ruocco |
Perhaps the
biggest difference between a rental property and other investments is the
amount time and work you have to devote to maintaining your investment. When
you buy a stock, it simply sits in your brokerage account and, hopefully,
increases in value. If you invest in a rental property, there are many
responsibilities that come along with being a landlord. When the furnace stops
working in the middle of the night, it's you who gets the phone call. If you don't
mind handyman work, this may not bother you; otherwise, a professional property
manager would be glad to take the problem off your hands, for a price, of
course.
Real
Estate Investment Groups - Blackpool Gazette
Real estate
investment groups are sort of
like small mutual funds for rental properties. If you want to
own a rental property, but don't want the hassle of being a landlord, a real
estate investment group may be the solution for you. A company will buy or
build a set of apartment blocks or condos and then allow investors to buy them
through the company, thus joining the group. A single investor can own one or
multiple units of self-contained living space, but the company operating the
investment group collectively manages all the units, taking care of
maintenance, advertising vacant units and interviewing tenants. In exchange for
this management, the company takes a percentage of the monthly rent.
There are
several versions of investment groups, but in the standard version, the lease is in the investor's name and all of
the units pool a portion of the rent to guard against occasional vacancies,
meaning that you will receive enough to pay the mortgage even if your unit is
empty. The quality of an investment group depends entirely on the company
offering it. In theory, it is a safe way to get into real estate investment,
but groups are vulnerable to the same fees that haunt the mutual fund industry.
Once again, research is the key.
Real
Estate Trading - Luciano Ruocco
This is the
wild side of real estate investment. Like the day
traders who are leagues away from
a buy-and-hold investor, the real estate traders are
an entirely different breed from the buy-and-rent landlords. Real estate
traders buy properties with the intention of holding them for a short period of
time, often no more than three to four months, whereupon they hope to sell them
for a profit. This technique is also called flipping properties and is based on buying
properties that are either significantly undervalued or are in a very hot
market.
Pure property
flippers will not put any money into a house for improvements; the investment
has to have the intrinsic value to turn a profit without alteration or they
won't consider it. Flipping in this manner is a short-term cash investment. If
a property flipper gets caught in a situation where he or she can't unload a
property, it can be devastating, because these investors generally don't keep
enough ready cash to pay the mortgage on a property for the long term. This can
lead to continued losses for a real estate trader who is unable to offload the
property in a bad market.
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| Blackpool Gazette Luciano Ruocco |
A second class
of property flipper also exists. These investors make their money by buying reasonably priced properties and adding value by renovating them.
This can be a longer-term investment depending on the extent of the
improvements. The limiting feature of this investment is that it is time
intensive and often only allows investors to take on one property at a time.
REITs - Blackpool Gazette Luciano
Real estate has
been around since our cave-dwelling ancestors started chasing strangers out of
their space, so it's not surprising that Wall Street has found a way to turn
real estate into a publicly-traded instrument. A real estate investment trust (REIT) is created when a corporation
(or trust) uses investors' money to purchase and operate income properties.
REITs are bought and sold on the major exchanges, just like any other stock. A
corporation must pay out 90% of its taxable profits in the form of dividends, to keep its status as an
REIT. By doing this, REITs avoid paying corporate income tax, whereas a regular
company would be taxed its profits and then have to decide whether or not to
distribute its after-tax profits as dividends.
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| Blackpool Gazette Luciano Ruocco |
Much like
regular dividend-paying stocks, REITs are a solid investment for stock market
investors that want regular income. In comparison to the aforementioned types
of real estate investment, REITs allow
investors into non-residential
investments such as malls, or office buildings, and are highly liquid, In other
words, you won't need a realtor to help you cash out your investment.
Leverage
With the
exception of REITs, investing in real estate gives an investor one tool that is
not available to stock market investors: leverage.
If you want to buy a stock, you have to pay the full value of the stock at the
time you place the buy order. Even if you are buying on margin, the amount you can borrow is
still much less than with real estate. Most "conventional" mortgages
require 25% down, however, depending on where you live, there are many types of
mortgages that require as little as 5%. This means that you can control the
whole property and the equity it holds, by only paying a fraction of the total
value. Of course, your mortgage will eventually pay the total value of the
house at the time you purchased it, but you control it the minute the papers
are signed.
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| Blackpool Gazette Luciano Ruocco |
This is what
emboldens real estate flippers and landlords alike. They can take out a second mortgage on their homes and put down payments
on two or three other properties. Whether they rent these out so that tenants
pay the mortgage or they wait for an opportunity to sell for a profit, they
control these assets, despite having only paid for a small part of the total
value.
