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REAL ESTATE INVESTING
Term Paper ID:31813
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Essay Subject:
How to invest and save money in real estate.
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5 Pages / 1125 Words
3 sources, 6 Citations,
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Paper Abstract:
Discusses real estate investing. How to invest and save money in real estate. The appeal of real estate investment for individual homeowners and as a financial investment on a larger scale.
Paper Introduction:
Real Estate Investing Introduction Investing in real estate has long held a strong allure for manyindividuals-their homes may be the only real estate investment they own but with options such as reverse mortgages and home equity loans manyindividuals consider a single residence investment sufficient Otherinvestors are drawn to real estate because there is a tangible asset-landor buildings-that does not exist with many other types of investments Still other investors think of themselves as real estate moguls in the moldof Donald Trump who
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If the market fails toappreciate in a relatively short period of time, however, the investor mayface a cash flow problem that poses difficulties. It is common for creativefinancing-such as issuing a first and a second trust deed at the same time-to be used to help a buyer afford more expensive properties. Failing to take these issues intoaccount can be costly, time consuming, and ultimately erode any savingsthat might have been realized from this strategy (Hall 2 4). The investor holds onto the property long enough to realize anacceptable profit, then sells the property paying off both mortgageobligations and enjoying a healthy profit. While it is not necessary for investors to become real estatebrokers, having a thorough understanding of the local market-and the factthat real estate investments are not particularly liquid-can be important.In addition, investors in real estate should understand the effect thatinterest rates have on the real estate market. So long asproperties enjoy a significant upturn in value, this is not necessarily abad idea. Real estate investors, like other investors, are interested in savingmoney on their investments. The feesassociated with ensuring that a property is free and clear from legalencumbrances can be high, but failing to make this determination can becostly. Before Investing Before making any cash investment, investors should consider thevarious types of real estate investment that are available. In Southern California, for example, real estateprices for homes have grown by 3 and 4 percent per year during the early2 s. This research considerssome of the considerations that individuals should take into account whenconsidering investing in the real estate market. Conclusion Real estate can be a strong addition to most investment portfolios,but it requires careful management and a thorough understanding of the typeof real estate investment being considered. Investing in these marketscan require significant amounts of capital, or access to capital that maybe difficult for the small or novice investor (Macfarlan 2 4). If housing prices fail to appreciate and theinvestor faces a cash crunch, it is possible that they will lose their home(Acacio 2 4). If investors are likely to invest in a numberof properties, buying and selling on a regular basis, perhaps because theyare buying properties in need of renovation and then reselling them oncethe renovations are complete, the investors may be able to negotiate anarrangement with a real estate agent to handle the sales for lower thantypical fees. Real Estate Investing Introduction Investing in real estate has long held a strong allure for manyindividuals-their homes may be the only real estate investment they own,but with options such as reverse mortgages and home equity loans, manyindividuals consider a single residence investment sufficient. Commercial real estate is most often associated with retail or business-occupied property, but can also be associated with rental housing such asapartments. Commercial real estate canoffer significant returns, but requires considerably more time to managethan buying and selling individual houses based on "sweat" equity. This ability, however, requires education (Hall2 4). By timing buying andselling with interest rates and other factors in the market, investors canrealize better returns. Investors should beware of other ways to save costs that might end uphurting the investor over the long-term, however. "Commercial Realty Investing Requires Groundwork." Investment News 8(Aug 9, 2 4): 23. Another way that investors can save money is to avoid using a realestate agent at all, or avoid engaging in due diligence. This, in turn, enhancesthe profitability that the investor is able to realize on the transactions(Acacio 2 4). For example, creativefinancing can offer some attractive options to investors, particularly whensuch financing makes it possible to obtain a more expensive property thanthe investor would otherwise be able to afford. While suchequity can provide a ready source of cash, investors who choose this optionneed to remember that they must repay the equity they borrow as well as theinterest associated with it, and that they are putting their primaryresidence up as collateral. For mostindividuals, however, real estate investing can be a formidable processwith considerable paperwork, many different financing options, and theability to lose money as well as generate income. At the same time, properties canbe cleared of other claims and encumbrances, but such considerations shouldbe priced into the deal ahead of time. If an investor purchases property from someone other than thelegal owner, the investor will probably lose his investment unlessrestitution can be made from the seller. Real Estate as an Investment Real estate is considered an attractive investment because there is alimited amount of land and thus a limited supply of real estate. When interest ratesincrease, the cost of mortgages increase. Given that not all land can be built on, and that there can beother limitations on which land is appropriate for building at any point intime, and there is a relatively stable amount of land and property that canbe developed. "Real Estate Investment 1 1." Asia Africa Intelligence Wire (Aug 1 , 2 4): n.p.Hall, Craig. Investors maywant to consider residential real estate-housing-or commercial real estate. Otherinvestors are drawn to real estate because there is a tangible asset-landor buildings-that does not exist with many other types of investments.Still other investors think of themselves as real estate moguls in the moldof Donald Trump who will make a fortune in real estate. In addition, population centers such as New York or Tokyohave high real estate prices because these centers are highly desirablewith a small supply of available real estate. When the market fails toappreciate and the investors is unable to sell the property, the investorcan end up in a negative cash flow-loss-situation. This can lower the amount thatis paid to principal each month and may have a dampening effect on prices,or at least how rapidly properties are able to sell. These investments can include additional realestate, or might be used for other non-real estate investments. Thussomeone interested in investing in residential real estate should learn thebasics of how properties are bought and sold, and what costs are associatedwith these. "Real Estate Bubble or Not?" Commercial Property News 18(Sep 1, 2 4): 42.Macfarlan, Dean. The same is not true for housing throughout the country, however,and rental property has not kept pace with residential dwelling prices evenin California. There are some fundamentals associated with investing in real estate,including the always-appropriate caution that investors should notparticipate in investment instruments with which they are unfamiliar. Although six percent has long been standard in real estate,this is a negotiable item, and if the investor expects to be able to offerthe agent a number of different properties in a short period of time, theagent may well agree to a lower commission rate. Otherswith an interest in investing in real estate should consider ensuring thatall legal encumbrances are clear from properties in order to realize thebenefit of real estate while offloading some of the risk. Many investors already own one piece of real estate-their home-which they may have seen appreciate significantly in value depending onwhere it is located. At thesame time, population is increasing around the world with the result thatnew dwellings and businesses are needed to accommodate the increasedpopulation. However, homeowners may also consider using the equity thatthey have built in their primary residence to borrow against in order tomake additional investments. Works CitedAcacio, Alexis A. While traditionallenders may not extend this type of financing arrangement on investmentproperties to novice investors, some novice investors will claim theproperty is for their primary residence.
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