Have you been considering real estate as an investment opportunity? With interest rates andsales prices at historically low levels, it might be the right time to make the move and turn yourinvestment dreams into a reality.
Why Invest? If you’re thinking about investing in real estate there’s one important question you’llwant to ask yourself: WHY do I want to invest in real estate?Is it because you’re super handy and the idea of having a couple of rental properties,which are providing income, to keep-up is exciting?Maybe you’re looking at all the tax advantages and are thinking about the write-offsthat could put some extra change in your pocket.Do you have a high tolerance for risk and are curious about how far you can take yourinvestment?No matter what your reason is, the important thing to know, from the beginning,is your ability, temperament and knowledge of why you’re investing in real estate. If you have that in mind you are starting off on the right track and have the opportunityto make some very good investment decisions.
Types of Investment Properties:
Residential- Residential family home, duplex or townhouse. Residential investors act as landlords(or contract with a management company) and are responsible for paying the mortgage,taxes, and insurance, as well as finding tenants and building maintenance.
Commercial- Commercial real estate is property that has been zoned for business use. Commercialreal estate can include retail stores, medical offices, office buildings, etc. whose tenantsare operating for a profit. Commercial investors generally contract with a managementcompany to find tenants and maintain the building.
Improvement (flip)- Improvement property is usually bought to be quickly re-sold. Investors “flip” the house;they buy an REO or distressed property well below the market value, invest personalmoney into fixing it up, and then re-list the home at an adjusted, competitive price fora profit. The key to investing in flipping houses is a quick turn-around time.
Land-Land as an investment provides a few opportunities. Land investors can purchase largequantities of land then sell it off in smaller parcels; they can invest in land then bringit through the zoning process and, once approved for residential or commercialdevelopment, sell it for a profit; they can purchase zoned land and develop the roads,sewer, utilities, etc. to sell it to a builder; or they can purchase developed land to buildon. Of course they could purchase the land and bring it through the entire process aswell. In certain parts of the country, land investors purchase land for mineral rights.
As a real estate investor, the usual goal of investing in property or landis profiting from it. Whether you want your profit to pay off the debt of the purchase or, down the road, provide for some steady positive income,there are a number of ways to earn money. Cash Flow- This is what’s coming in versus what’s going out. The most common methodof cash flow with real estate is through a rental property; the cash flow you earn is the difference of your mortgage expenses, upkeep rates and your rental income. Appreciation- This is the increase of value over time and is the difference of what was paidversus what it’s worth now. With real estate investments, a few factors will affect your appreciation; they include location, property condition and thecurrent economic condition.Forced Appreciation- This too is the increase of value, but its value you’ve added by making improvements. In real estate you force appreciation to your investments when you flip houses, update or upgrade rental properties, zone or develop land, etc.<span> Amortization- This occurs over time. With each payment you make towards your investment debt, a portion is applied to the interest on the loan; the other half is paid tothe principal. The reduction of your principal is amortization and as your debtis reduced your equity increases.Tax Deductions- This is huge for most real estate investors of rental properties. The IRS allowsyou to deduct a number of expenses including interest, depreciation costs,repairs, insurance and more. The less money you’re taxed on means moremoney in your pocket.
Remember, Interest rates and sale prices are at historically low levels, making it agreat time to invest in real estate. As you move forward with your realestate investment plans keep in mind these three final tips:
•Constantly be aware of your budget.
•Building wealth in real estate takes time.
•Hire an experienced RE/MAX agent specializing in Investment properties to guide you through the process.
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