WEALTH CREATION BY BECOMING A LANDLORD

Wealth Creation is a skill that many people attempt to master. Many people attempt to create wealth through real estate investing, but fail to do so because they lack the knowledge needed to become successful.


A very simple wealth creation strategy that you can use to become wealthy is to become a landlord. Becoming a landlord is the classic wealth creation model of real estate investing. Let's assume that you acquire ten properties worth $100,000 each and after renting them out consistently for ten years, they are now worth $180,000 each. Not taking into account the income that you received from these properties over the last 10 years, you would have increased your wealth by $800,000 just off of the appreciation alone. That is why becoming a landlord is a powerful wealth creation strategy.


The concept is simple in theory, but takes good management skills in order to be successful long term. If you can purchase numerous houses, rent them out consistently, and manage them well, then you will be well on your way to creating wealth and financial freedom for yourself. Unfortunately, the reality is that the beginning years can be tough on beginning landlords because generally the expenses on your rental properties will be high and the income will be marginal. Over the years as the income increases the profit generated from these properties can be significant.


Management is really the key to a landlord's success and wealth creation. If you plan to follow this business model and hold these rental properties for the long term, then you must know how to effectively manage these properties, or you must hire a property manager who can properly manage them.


The image of being a landlord strikes fear into the hearts of many aspiring real estate investors. All they can picture are the late night calls from tenants claiming that the toilet is broken. However, this is rarely the case, and for the savvy landlord who hires a property management firm, this is never a concern. The reality is that a well managed property can provide you with a large passive income. You might start off investing in single family houses, but eventually you will want to upgrade to apartment investments in order to maximize your returns. If you are committed to taking the plunge as a landlord, and acquire good properties and manage them will, you can look forward to creating wealth that most people only dream about.


The goal of wealth creation is truly up to you. Study your market and the rental rates in your area and try to find a good property manager. These simple steps will put you on the right path to wealth creation by becoming a landlord. 


By: Perry Pearson, ArticleBase

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WHY SHOULD YOU INVEST IN REAL ESTATE

As a Real Estate investors you can achieve much more attractive returns due to the multiple income streams from real estate investment.  The following are various ways in which you can achieve positive returns on your investment:
1. Rental yield: 
This is the percentage yield from direct rental income, and can be calculated as either gross or net. Experienced investors prefer to calculate the Net Rental Yield, which takes the expenses, taxes and other costs into account, and divides by the property value/cost. It could be a negative cash flow, as it doesn't take mortgage payments into account.
2. Appreciation:
Rental properties normally appreciate in value with inflation. Increased value can mean sale and reinvestment in higher value properties, or provide an equity line of credit to use for other investments. This is the second, and a historically proven value component of real estate investment return.
3. Inflation is Rent-Friendly:
Rents usually increase with inflation, while mortgage payments on the property remain stable. This increases cash flow, with more rent income without increased expense for holding the property. When inflation is up, it can also mean more renters, as the affordability of homes can be negatively impacted by inflation. More renters increases demand, so rents can escalate.
4. Leverage:
Using leverage, while being careful to buy properties with good rental yields, provides greater returns. Using $100,000 to purchase three properties with down payments, instead of one for $100,000 cash, can greatly increase returns. Of course, all leverage involves risk, so the successful investor must understand how leverage impacts their real estate investments.
5. Paying down the loan:
Amortization, or paying down the loan, frees up more investment resources to increase leverage. Some investors use increased equity in one property to free up funds to invest in others.
6. Property improvement for equity:
Many investors intentionally purchase properties at a value because they lack some feature or could use some improvements in condition or amenities. They have calculated that the value of the improvements will exceed the cost, resulting in an immediate increase in equity.
When compared to other investments, real estate can provide much better yields and multi-faceted investment returns. While stocks and bonds are inflation-sensitive, and typically involve only value appreciation potential and low or non-existent dividend/interest returns.
By: James Kimmons, About.com Guide

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MAKING MONEY WITH REAL ESTATE

Are you losing money in all kind of speculative instruments like share, bonds and forex and are wondering what asset class to invest in? Why not consider real estate investment with its traditionally higher yields as compared to leaving your money in your bank account.

Discussed here in this article are four common strategies that real estate investors use to make money in property investment.

Money Making Method #1 - Purchase run down property and spruce it up

This method involves finding a run down property in a good area that you think has promise for resale and sprucing it up like some of the shows where people do an extreme makeover on the property. Hence, you will need to redecorate and repair it and then you can resell this real estate for a much higher price.

Bring along a good structural engineer or architect when you do look for such properties so as to ensure that the renovation works that you have to do will not be so extensive that it does not become worth your while to purchase the property.

The key consideration when investing in this kind of real estate is to keep your renovation costs low but ensure that the basic utilities like the electricity, water and gas pipes are in good working condition.

Money Making Method #2 – Find places with high rentals

Find areas with traditionally high rental returns that outperform the national average and then spend time looking for them and make money from the rentals.

In this type of real estate investment, spending some time to find the real estate investment that is a bargain is a good idea, so that you can get better return on investment.

Rental yields or return on investment is critical when you decide what type of property you wish to purchase.

Money Making Method #3 - Purchase foreclosed property

Most people will know that foreclosed property usually fetches a lower price than the market value since banks are often eager to sell at a price that covers their mortgages or sometimes they just want to liquidate the property. Such properties tend to be auctioned off and you can then resell them for a higher value subsequently. However beware of hidden defects in auction properties and always arrange for a visit down to the property just to check it out.

Two people you should bring with you when deciding on this type of real estate investment is your professional engineer and your contractor. You want to check for hidden defects in your real estate investment to avoid buying a defective property that would cost loads of money just to repair.

Money Making Method #4- Cash Flow Investment

According to Robert T. Kiyosaki, the best investment you get is when you find a property at a bargain and then purchase it with as much debt as possible and then generate a cash flow from the difference between the monthly rent and the mortgage instalment. This method is highly interesting and requires you to really spend time looking for such a real estate investment that fits in that criteria.

Remember that real estate investment is dependent on rental and the higher the proposed rental the better your monthly cash flow is. You could also purchase the property at a lower price and this would mean that your monthly cash flow would improve. Note that once your property is partly paid up, you can refinance your loan and extract out some money and purchase a second property and so on. Soon you would have multiple streams of income from the purchase of one real estate investment property.

In conclusion, there are many ways to make money from real estate investment and what’s missing is massive action on your part. Take massive action and start hunting for your ideal real estate investment property today and start generating substantial real estate investment property profits.

Source: Joel Teo | The Real Estate Investment Site

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THE REAL ESTATE INVESTING STRATEGIES

If you're thinking about investing in real estate to make money, you need to first determine your financial goals. Do you need to make money quickly, invest for your children's college fund, or build wealth for your retirement? Once you determine your financial goals, you need to decide which type of investing strategy works for you. What's the difference between income and investment property?

Fast Cash Strategy

If you're low on cash, get started by finding a bargain house and selling the contract to another real estate investor. Join a real estate investing club to find investors willing to pay you for finding good deals.

Income Property Strategy

If you want to increase your monthly income, look for income property that returns a positive net income from month to month. Start with single family house. Look for a bargain below market value. Fix up the house to generate top rental income. Find houses that will rent for more than your mortgage payment.

You may need to go out from your home area to a location that supports this type of return on your money. You can't pay $300,000 for a home with a mortgage of $1,500 that only rents for $1,000. You might start with a home for around $300,000 that rents for $1,750. You will need good credit to get a loan with good interest rates. In a few years, your rental income should go up. Many real estate investors enjoy thousands of dollars each month generated by income property.

However, some investors don't like dealing with tenants and prefer to make money in other real estate ventures.

Investment Property Strategy

If you want to make money focusing on profits, investment property offers a different strategy. Instead of worrying about rental income, look for property that you can transform and sell or property that will appreciate significantly over time. Besides fixing a house up, you can transform a property by changing it. For instance, some investors buy apartment buildings and turn them into condominiums. Many investors speculate in land and make money by holding the land until new development in the area increases the value.

Examine your financial situation along with your long term goals. You can get started by flipping properties, move onto income properties, and then make larger profits with investment properties. You might end up using a combination of all three strategies to make money investing in real estate.

Source: Jeanette Joy Fisher | The Real Estate Investment Site

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CHARACTERISTICS OF REAL ESTATE INVESTMENTS

Some of the characteristics that make real estate unique as compared to other investment alternatives are as follows:


Tangible
Real estate is, well, real! You can visit your investment, speak with your tenants, and show it off to your family and friends. You can see it and touch it. A result of this attribute is that you have a certain degree of physical control over the investment - if something is wrong with it, you can try fixing it. You can't do that with a stock or bond.


No fixed maturity
Unlike a bond which has a fixed maturity date, an equity real estate investment does not normally mature. For instance, in Europe, it is not uncommon for investors to hold property for over 100 years. This attribute of real estate allows an owner to buy a property, execute a business plan, then dispose of the property whenever appropriate. An exception to this characteristic is an investment in fixed-term debt; by definition a mortgage would have a fixed maturity.


Inefficient Markets
An inefficient market is not necessarily a bad thing. It just means that information asymmetry exists among participants in the market, allowing greater profits to be made by those with special information, expertise or resources. In the real estate markets, information is king, and can allow an investor to see profit opportunities that might otherwise not have presented themselves.


Requires Management
Because real estate is tangible, it needs to be managed in a hands-on manner. Tenant complaints must be addressed. Landscaping must be handled. And, when the building starts to age, it needs to be renovated.


Lower Liquidity
With the exception of real estate securities, no public exchange exists for the trading of real estate. This makes real estate more difficult to sell because deals must be privately brokered. There can be a substantial lag between the time you decide to sell a property and when it actually is sold - usually a couple months at least.


High Transaction Costs
Private market real estate has high purchase costs and sale costs. On purchases, there are real-estate-agent-related commissions, lawyers' fees, engineers' fees and many other costs that can raise the effective purchase price well beyond the price the seller will actually receive. On sales, a substantial brokerage fee is usually required for the property to be properly exposed to the market. Because of the high costs of “trading” real estate, longer holding periods are common and speculative trading is rarer than for stocks.


Variability among Regions
However cliché it may sound, location is one of the important aspects of real estate investments; a piece of real estate can perform very differently among countries, regions, cities and even within the same city. These regional differences need to be considered when making an investment, because your selection of which market to invest in has as large an impact on your eventual returns as your choice of property within the market. 


Underlying Tenant Quality
When assessing an income-producing property, an important consideration is the quality of the underlying tenancy. This is important because when you purchase the property, you're buying two things: the physical real estate, and the income stream from the tenants. If the tenants are likely to default on their monthly obligation, the risk of the investment is greater.


Source: Ian Woychuk, Investopedia.com

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DISADVANTAGES OF REAL ESTATE INVESTMENTS

Real estate also has some characteristics that require special consideration when making an investment decision:


Costly to Buy, Sell and Operate - For transactions in the private real estate market, transaction costs are significant when compared to other investment classes. It is usually more efficient to purchase larger real estate assets because you can spread the transaction costs over a larger asset base. Real estate is also costly to operate because it is tangible and requires ongoing maintenance.


Requires Management - With some exceptions, real estate requires ongoing management at two levels. First, you require property management to deal with the day-to-day operation of the property. Second, you need strategic management of the property to consider the longer term market position of the investment. Sometimes the management functions are combined and handled by one group. Management comes at a cost; even if it is handled by the owner, it will require time and resources.


Difficult to Acquire - It can be a challenge to build a meaningful, diversified real estate portfolio. Purchases need to be made in a variety of geographical locations and across asset classes, which can be out of reach for many investors. You can, however, purchase units in a private pool or a public security, and these units are typically backed by a diverse portfolio.


Cyclical Leasing Market - The leasing market consists of the market for space in real estate properties. As with most markets, conditions of the leasing market are dictated by the supply side, which is the amount of space available (or, vacancies), and the demand side, which is the amount of space required by tenants. If demand for space increases, then vacancies will decrease, and the resulting scarcity of space will cause an increase in market rents. Once rents reach economic levels, it becomes profitable for developers to construct additional space so that supply can meet demand.


Cyclical Investment Marke) - The real estate investment market moves in a different cycle than the leasing market. On the demand side of the investment market are investors who have capital to invest in real estate. The supply side consists of properties that are brought to market by their owners. If the supply of capital seeking real estate investments is plentiful, then property prices increase. As prices increase, additional properties are brought to market to meet demand.


Performance Measurement - In the private market there is no high quality benchmark to which you can compare your portfolio results. Similarly, it is difficult to measure risk relative to the market. Risk and return are easy to determine in the stock market but measuring real estate performance is much more challenging.


Source: Ian Woychuk, Investopedia.com

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ADVANTAGES OF REAL ESTATE INVESTMENTS

Some of the benefits of having real estate in your portfolio are as follows:


Diversification Value - The positive aspects of diversifying your portfolio in terms of asset allocation are well documented. Real estate returns have relatively low correlations with other asset classes (traditional investment vehicles such as stocks and bonds), which adds to the diversification of your portfolio. 


Yield Enhancement - As part of a portfolio, real estate allows you to achieve higher returns for a given level of portfolio risk. Similarly, by adding real estate to a portfolio you could maintain your portfolio returns while decreasing risk.


Inflation Hedge - Real estate returns are directly linked to the rents that are received from tenants. Some leases contain provisions for rent increases to be indexed to inflation. In other cases, rental rates are increased whenever a lease term expires and the tenant is renewed. Either way, real estate income tends to increase faster in inflationary environments, allowing an investor to maintain its real returns. 


Ability to Influence Performance - Real estate is a tangible asset. Thus, an investor can do things to a property to increase its value or improve its performance. Something like, replacing a leaky roof, improving the exterior and re-tenanting the building with higher quality tenants. An investor has a greater degree of control over the performance of a real estate investment than other types of investments.


Source: Ian Woychuk, Investopedia.com

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BUYING AND OWNING REAL ESTATE: PRIVATE DEBT

Private debt is not so much purchased as it is issued. That is, if you would like to invest in private debt, you should provide mortgage financing to an owner of real estate. In return for your mortgage loan, you will receive a fixed or floating interest rate, and a priority claim on the real estate assets in the event of default on the loan. 


A common example of investing in private debt is a vendor take-back mortgage (VTB). If you own a commercial property and sell it to a purchaser, you could choose to accept all or part of the payment over time. Just like a conventional mortgage received from a financial institution, the purchaser would pay interest on the borrowed funds over the length of the term, and you would register your claim to receive the payments on the title to the property. 


Another alternative is to make a contribution into a private mortgage pool, which is a pool of capital that is invested in a variety of mortgages. Such an investment would require diligence to determine its risk, because there is no third party rating agency to depend upon. 


A benefit of a mortgage pool versus a VTB is that a default of one mortgage will have less of an impact on your investment if it is combined with other mortgages to balance the risk. To purchase units in a private mortgage pool, you should contact an investment manager who assembles such pools, or a broker involved in the private mortgage market.


Source: Ian Woychuk, Investopedia.com

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BUYING AND OWNING REAL ESTATE: PUBLIC DEBT

A common example of public debt is a commercial mortgage-backed security (CMBS). A CMBS is a pool of mortgage loans that are assembled by a lender, and then sold in tranches to the public market. As borrowers make their regular mortgage payments, the proceeds are pooled together and then are paid to the owners of the debt securities in a priority dictated by the rating of the security. 


The security's rating is determined by a third party rating service such as Moody's, Fitch, Standard & Poor's and Dominion Bond Rating Service. The rating process involves the agency reviewing the pool of mortgage loans, including an examination of the underlying collateral assets, to determine the quality of cash flow that is likely to be derived from those loans. 


If the loans are of a very high credit quality, a larger proportion of the mortgage pool will be assigned an AAA rating. The rating categories are consistent with bond rating categories, so for instance the A tranche is subordinate to the AAA tranche, and the buyer of the B-piece will be subordinate to all of the more senior tranches. Usually, all the holders of the more senior securities must receive their principal and interest payments before the subordinate pieces receive theirs. As such, tranches with lower credit quality are riskier, but have higher return potential.


Because each tranche of the loan pool has a different set of risks, maturity, sensitivity to changes in interest rates and return, your investment decision should be based on the type of exposure you require for your portfolio. It should also incorporate your assessment of the interest rate environment and any likely changes. CMBS securities can be purchased from a broker of such securities. It is recommended that you consult with an advisor prior to purchasing such securities because they can behave differently depending on the interest rate environment.


Source: Ian Woychuk, Investopedia.com

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BUYING AND OWNING REAL ESTATE: PRIVATE EQUITY (B)

It is also worthwhile to complete a thorough due diligence on your prospective investment. This process can include having reports completed on the physical and environmental condition of the property, and having an appraisal performed. Your lawyer will be able to obtain a variety of search results and will assist in examining the title. Depending on the complexity of the purchase, there are many other tasks that may be required.


There are many costs related to due diligence and the purchasing process, so be sure these costs become part of your financial analysis. Some typical costs include lawyer's fees, financing fees, appraisal costs and other administrative fees.


Don't think that your job is done after your purchase; here are some things you need to consider after purchasing your piece of real estate:


* You should determine how you are going to manage the investment. Will you do it yourself or hire a manager? Remember that cost accounting will be required.
* Tenant relationships are critical, so always respect their requirements and maintain a working business relationship with them.
* Remember that if you hire a property manager, they are not managing the long-term strategy of the property, unless it is specifically agreed upon that they will handle that role. It is up to you to ensure the long-term viability of the investment and to instruct the property manager with respect to strategy, such as redeveloping or selling the property.
* The decision to sell is as important as the decision to buy, but remember that there will be trading costs associated with completing a sale.


Source: Ian Woychuk, Investopedia.com

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BUYING AND OWNING REAL ESTATE: PRIVATE EQUITY (A)

Private equity real estate investing is the traditional ownership method. If you own a home, you've participated in this market. 


There are a number of things to keep in mind when looking for deals, here are a few tips to follow:


   * The key to locating investment opportunities is to be in touch with the various deal sources. You should get to know various real estate brokers and      dealers. It also helps to have a network of other real estate owners, so you can keep up with an ever-changing market. You can find deals in unexpected places, such as your banker, lawyer, mortgage broker or through foreclosure records.
   * Over time, your reputation becomes very important in maintaining a reliable flow of investment opportunities. If you are a person that people want to deal with, opportunities will come to you easier.
   * Take your time to find the investment that meets your desired characteristics. You'll be better off waiting for the right investment than rushing into a questionable one.
   * Look for positive fundamentals in all of your investments. Always ask yourself what drives tenants to want to be in the building you're considering, and what could happen in the future to affect the desirability of the property. Consider things such as quality of tenants, building configuration, location, condition and ability to finance.


When you find the right deal, always complete a financial analysis to make sure the returns meet your investment criteria. If you need financing, speak to a lender or a mortgage broker to determine what type of mortgage is available, and then include the financing in your financial model.


Source: Ian Woychuk, Investopedia.com

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BUYING AND OWNING REAL ESTATE: PUBLIC EQUITY

Public equity is made up of real estate securities such as standard equity REITs or publicly traded real estate operating companies. Because investments are traded on a stock exchange, they tend to exhibit return patterns that are similar to equities, even though the underlying assets are real estate.


At any point in time, these public securities will be trading at a discount or a premium to their net asset values (NAVs), meaning that the value of the company is different than the sum of the underlying real estate values. This occurs as a result of the stock market valuation of these securities, which incorporates things like investor sentiment and psychology. It is important to be aware of this characteristic when making an investment in a real estate security because such investments can perform very differently than the underlying real estate that these public companies own.


One of the benefits of buying a security is the relative ease of acquisition. You buy it in the same manner as you would buy a stock - phone your broker, make the order and pay the relevant commission. You also achieve good liquidity with these investments, because they can be sold on short notice into the market with none of the usual delays that take place in the private market.


Source: Ian Woychuk, Investopedia.com

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FINDING INVESTMENT VALUE IN REAL ESTATE

Real estate returns are generated in two ways. First, the income return comes from tenants' rent payments. The income return is a straightforward calculation because all you need to know is how much cash remains after all property expenses have been paid. The second type of return is the capital return, which is the increase or decrease in the value of the property due to changes in market demand and/or inflation. The capital return is more difficult to calculate, and requires the property to be valued or appraised.


If you want to determine the value of a real estate investment, the most accurate method is to sell the property and see how much money you get for it. Of course, the problem with this method is that you would no longer own that asset! In most cases you would want to determine the value without selling the asset, so you would approximate the value of the property based on the price that was actually achieved for other similar properties in the area of interest. 


The approximation process can be inexact and subjective. The real estate market does not have the convenience of a public market, such as that for stocks, where you can continuously value an asset. Also, it is rare for two real estate properties to be exactly the same - unlike two shares of stock in a company, which are exactly the same. A third factor contributing to the subjectivity of real estate valuation is that it doesn't trade very often, so it can be difficult to establish a market value- especially if substantial time has passed since the last comparable trade.


All of the above noted valuation issues have given rise to a group of professional consultants referred to as appraisers. The task of an appraiser is to objectively assess the market value of a property by hypothesizing the most likely price of a trade between an arms-length buyer and seller. Appraisers have appropriate education and experience to perform property valuations, and typically are certified by a professional body which sets appraisal rules that must be followed by all of its members.


Source: Ian Woychuk, Investopedia.com

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SIMPLE WAYS TO INVEST IN REAL ESTATE

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 fifty 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.


Within these examples there are countless variations of real estate investments. As with any investment, there is much potential with real estate, but this does not mean that it is an assured gain. 


As with any investment, make careful choices and weigh out the costs and benefits of your actions before diving in. 


The following are ways in which you can invest in Real Estate;


1. Rental Properties
2. Real Estate Investment Groups
3. Real Estate Trading
4. Real Estate Investment Trusts (REITs)
5. Leverage


Source: Andrew Beattie, Investopedia.com

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UNDERSTANDING REAL ESTATE INVESTMENTS 2

The various categories of real estate investments available, include direct property ownership, mortgages, and debt or equity securities. What these real estate investments have in common is that there are one or more tangible real estate properties underlying each investment. 


That means when you make an investment, it is important to consider the characteristics of the underlying real estate because the performance of those properties will impact the performance of your investment.


When you're looking at the underlying real estate, one of the most important criteria (aside from location, location, location!) is the type of property. When considering a purchase, you need to ask yourself whether the underlying properties are, for example, residential homes, shopping malls, warehouses, office towers or a combination of any of these. 


Each type of real estate has a different set of drivers influencing its performance. You can't simply assume one type of property will perform well in a market where a different type is performing well. Likewise, you can't assume one type of property will continue to be a good investment simply because it has performed well in the past.


Source: Ian Woychuk, Investopedia.com

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GAINING FROM REAL ESTATE INVESTMENTS

Real Estate produces relatively consistent total returns that are a hybrid of income and capital growth. In that sense, real estate has a coupon-paying bond-like component in that it pays a regular, steady income stream, and it has a stock-like component in that its value has a propensity to fluctuate. And, like all securities that you have a long position in, you would prefer the value to go up more often than it goes down!


The income return from real estate is directly linked to the rent payments received from tenants, minus the costs of operating the property and outgoing mortgage/financing payments. So, you can understand how important it is to keep your property as full as possible. 


If you lose too many tenants, you won't have sufficient rents being paid by the other tenants to cover the building operating costs. Your ability to keep the building full depends on the strength of the leasing market - that is, the supply and demand for space similar to the space you are trying to lease.


In weaker markets with oversupply of vacancies or poor demand, you would have to charge less rent to keep your building full than in a strong leasing market. And unfortunately, if your rents are lower, your income returns are lower.


Capital appreciation of a property is determined by having the property appraised. If the appraiser thinks your property would sell for more than you bought it for, then you've achieved a positive capital return. 


Because the appraiser uses past transactions in judging values, capital returns are directly linked to the performance of the investment sales market. The investment sales market is affected largely by the supply and demand of investment product.


The majority of the volatility in real estate returns comes from the capital appreciation component of returns. Income returns tend to be fairly stable, and capital returns fluctuate more. The volatility of total returns falls somewhere in between.


Source: Ian Woychuk, Investopedia.com

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INCOME-PRODUCING & NON INCOME-PRODUCING REAL ESTATES

There are four broad types of income-producing real estate: offices, retail, industrial and leased residential. 


There are many other less common types as well, such as hotels, mini-storage, parking lots and seniors care housing. The key criteria in these investments that we are focusing on is that they are income producing.


Non-income-producing investments, such as houses, vacation properties or vacant commercial buildings, are as sound as income-producing investments. Just keep in mind that if you invest equity in a non-income producing property you will not receive any rent, so all of your return must be through capital appreciation. 


If you invest in debt secured by non-income-producing real estate, remember that the borrower's personal income must be sufficient to cover the mortgage payments, because there is no tenant income to secure the payments.


Source: Ian Woychuk, Investopedia.com

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REAL ESTATE INVESTING: AN INTRODUCTION

Usually, when you think about real estate investing, the first thing that comes to your mind is a home. For most people, their home is the best investment they ever will make.


However, once you purchase a home, it becomes an important part of your portfolio, because it serves a dual role as not only an investment, but also a centerpiece to your daily life.


Although a home is one of the largest investments an average investor will purchase, there are other types of real estate investments worth investing in, such as income-producing real estate.


Large income-producing real estate properties are commonly purchased by high net-worth individuals and institutions, such as life insurance companies, real estate investment trusts (REIT) and pension funds, etc.


Income-producing properties are also purchased by individual investors in the form of smaller apartment buildings, duplexes or even a single-family homes or condominiums that are rented out to tenants.


Real Estate is conventionally seen as an Alternative Investment Class, when it comes to the issue of portfolio investing. This implies that it is an extra investment used to build on a basic portfolio of stocks, bonds and mutual funds, etc.


One of the main contrast between investing in a piece of real estate as compared to stocks or bonds, is that real estate is an investment in the physical aspects of a building and the land it is built upon. This makes real estate highly tangible, because unlike most stocks you can see and touch your property.


This often creates substantial pride of ownership, but tangibility also has its downside because real estate requires hands-on management. For instance, you don't need to unplug the toilet of a stock or mow the lawn of a bond.


Source: Investopedia.com

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INVEST IN REAL ESTATE: 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. 


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.




Source: Andrew Beattie, Investopedia.com

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INVEST IN REAL ESTATE: REAL ESTATE INVESTMENT TRUSTS (REITS)

Real estate has been around since our cave-dwelling ancestors started chasing strangers out of their space, so it's not surprising that Financial Institutions have found ways 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. 

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 (malls, office buildings, etc.) and are highly liquid - in other words, you won't need a realtor to help you cash out your investment.

Source: Andrew Beattie, Investopedia.com

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