What You Need to Know about Real Estate
What do you need to know about real estate? The answer is dependent on whether you are merely looking to purchase or sale one house or if you are trying to make your career in real estate. Whatever you do, don’t try to learn everything about real estate, instead focus on a specific segment of real estate (commercial/residential/multi-family) and learn as much as you can about that portion of the market. Remember, focus on one segment because if you try to be an expert in all aspects of real estate you will end up not being an expert in any.
While it is true that some people have made quick riches from real estate without much knowledge about investing most folks do their homework before committing their finances to. Real estate can be profitable when people have the knowledge to make wise investments.Calculating the amount of money you can expect to make on an investment property is not always as simple as a difference between money in and money out. While keeping a record of total buying costs, renovation costs, time for turnover, monthly mortgage payments, and staff overhead is essential to reaching a general idea of which investment property will get you the most profit, there are a number of other more subtle considerations to keep in mind.
The calculation of a net operating income for a property is essentially the income coming in minus the operating costs for holding onto and managing the property. If this number ends up being negative it is called a net operating loss, a clear signal of a poor investment property. Net operating income is a great tool to use when determining whether to invest in a property.
One way that your investment property can add to your income flow is by saving you some money come tax day. Real estate investments are full of instances where your investments are completely tax-deductible. From property taxes, to interest on loans, to even the amount of money you save from refinancing; all of these costs can be filed as deductible expenses. Another way that real estate provides a tax shelter is through depreciation of your property. While your land will never depreciate, you can progressively depreciate a home and write off a fraction of that property cost at a steady rate each year until it is fully depreciated.
Capital appreciation entails a rise in the market value price of your property over time. Whatever the reason, whether the neighbourhood that your property is in becomes more desirable, or if the public schools in the area improve, a rise in market price is a good thing for when you decide to sell. Capital appreciation is a figure that property flippers pay close attention to in particular since the guiding principle behind flipping a home is buying a property at rock bottom and putting just enough money in to get to it market value for the most profit.
Typically, prospective investors visit the properties, research neighbourhoods and pay close attention to the data provided in a comparative marketing analysis. Finally, get the calculation tools necessary to compare properties and determine their profit potential.
Buying property with little or no down payment is an appealing prospect, but there are major pitfalls to this strategy. Put simply, leverage is cash that the investor does not have on hand, but has access to, to acquire an asset. Mortgages and home equity loans are ways investors can acquire investment properties with little or no cash.
Some real estate investors use non-bank financing as leverage to buy property. Though leverage can increase the amount of property an investor can purchase – for example, leverage might help an investor buy two properties instead of one – savvy investors don’t use it without understanding the risks. You must understand the risk before jumping into a deal, if you don’t understand the risk than don’t even think about doing the deal.
Understanding the types of mortgages available and the benefits of each as well as the risks is also critical to your success in this business. Investors typically must have 20 percent of a property’s sale price to qualify for an investor mortgage. Investors should shop around to find mortgages that offer favourable interest rates and proceed with caution when it comes to zero down, adjustable rate and balloon investment mortgage types.
You will also want to decide if you want to flip properties or if you want to be a buy and hold investor. You will want to assess your skills and temperament to decide if you’re cut out to be a landlord or a flipper. If you want to be a landlord, you will need to keep your investment properties occupied, you’ll need to be available 24 hours a day, 7 days a week to address problems as they arise. Of course, you also have the option of hiring a property manager to handle the day-to-day business operations.
With the real estate market on the upswing and properties moving quickly, the present seems like the perfect time to dip your feet into the market. Before you dive head-first into flipping or buying and renting houses, make sure you understand the risks, rewards, ins and outs of real estate investing.
Every investment you make comes with a set of risks. The real estate market is volatile; your money can be tied up in a property for a long while. Due to this inherent risk in the market, it is not advisable to engage in risky lending processes, which can lead you down a path in the case that your investment of financial security deteriorates. Even if you secure proper financing, be aware of the risks and pitfalls that may occur.
Doing your homework on your first property is a long and arduous process, but it is a critical and unavoidable step if you plan on making money off of your investment.Miscalculating your net operating income can saddle you with a property that makes you lose not gain capital. Connect with reliable contractors and professionals to get accurate estimates on rehabilitation costs, and factor in unforeseen funds for those costs that are bound to turn up in the process.
While the professionals make renovations look painfully effortless on TV, if you’ve ever been involved in a renovation at your own place, you know how these things can take a sharp turn downwards. Picking a complete fixer upper as your first project with minimal experience can tie up your time and money for a long time while you get your property market ready.
Buying a turn-key property may not be the best route for maximising your profit either. While many renovations do end up being sinkholes for money, a number of smart projects on the other hand can drastically increase the market price and rental price of your property.
At the end of the day, the most important part of property investment is this: Be prepared. If you have your priorities and finances in order, the process will be far less of an uphill battle. Investing in real estate is a business and if you are serious about being successful you need to put in the effort and do your homework. Don’t take this business lightly and think it will be easy as nothing worthwhile ever is, but if you put in the time and do your research and make fiscally responsible decisions than you have a great opportunity to have a great deal of success.