INVEST IN REAL ESTATE: REAL ESTATE TRADING

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. 


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.




Source: Andrew Beattie, Investopedia.com

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INVEST IN REAL ESTATE: REAL ESTATE INVESTMENT GROUPS

These 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 (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. Usually, it is considered a safe way to get into real estate investment.




Source: Andrew Beattie, Investopedia.com

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INVEST IN REAL ESTATE: BASIC RENTAL PROPERTIES

This involves a person willing to 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.


On the other hand, you can end up with a bad tenant who damages the property or, worse still, end up having no tenant at all. This leaves you with a negative monthly cash flow, meaning that you might have to scramble to cover your mortgage payments. 


There is also the matter of finding the right property - you will want to pick an area where vacancy rates are low (due to demand) and choose a place that people will want to rent.


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 water taps stop working in the middle of the night, it's you who gets the phone call. 




Source: Andrew Beattie, Investopedia.com

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UNDERSTANDING REAL ESTATE INVESTMENTS 1

The following are some of the main points to consider when making a Real Estate Investment:


* Real estate investments fall into one of the four following categories: private equity, public equity, private debt and public debt. Your choice of which one to invest in depends on the type of exposure you are seeking for your portfolio.


* You can invest in either income-producing properties or non-income-producing properties. Any leased property is income producing, and vacant properties are non-income producing. You can still earn a capital return on a non-income producing property, just as you would on an investment in a home.


* The major types of investment properties are offices, retails, industrials and multi-family residential properties.


* Real estate can produce income (like a bond) and appreciate (like an equity).


* Real estate is tangible, so it requires ongoing management. On the other hand, you also have an increased ability to influence the performance of a single investment as compared to other asset classes.


* Some of the benefits of adding real estate to a portfolio include: diversification, yield enhancement, risk reduction and inflation-hedging capabilities. 


* However, real estate also has high transaction costs, can be difficult to acquire and it is challenging to measure its relative performance.


* Buying real estate requires substantial due diligence to ensure that you're getting what you expect after you close.


* The way to determine the value of your property (other than actually selling it) is to have it appraised by an accredited appraiser. 




Source: Investopedia.com

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