Real Estate as an Investment

Real Estate Investment Purchase

The real estate market is booming across the country, and now is a great time to buy! But before you start looking for properties, it’s crucial to understand how to make money in this area. In this post, we will discuss the best ways to make money in real estate and some of the steps you can take today that will help your investments grow over time.

Location of Property

A real estate investor’s most successful strategy is determined by location, location, location. Property value increases proximity to amenities, green space, scenic views, and a neighborhood’s status is considered. Commercial property valuations are greatly influenced by the proximity of markets, warehouses, transportation hubs, freeways, and tax-free zone rules.

Furthermore, factors such as the location of property and proximity to amenities or green space will also influence how much a buyer is willing to pay for a given piece of land (or building). To illustrate this point: if you have two plots of land in the same city that are identical in every way except one has apple trees. The buyer will most likely pay a premium for the plot with trees because they will want to harvest apples and enjoy them.

A crucial aspect of determining the best location for a property is to assess the dynamics of a given area and visualize the long-term evolution of the local area over the investment period, which could easily be affected by a change in zoning the development of new transportation infrastructure.

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Assessment of the Property Value

In order to calculate the buy price and listing price, as well as assess the risk and probability of resale, property valuation is vital.

Now, let’s take the example of an apartment complex that has two identical buildings with the same number and types of units – one building located in the downtown area. At the same time, another one ten kilometers away from the city center on rural land: The first property can be used for both residential and commercial purposes, while the other one can only be used for residential purposes. For these reasons, the first property will have a higher value and is more likely to resell at an optimal price than the second one.

It’s essential to evaluate if there are any zoning changes soon or anything else that could change land values when assessing a property valuation.

There are approaches to consider when assessing the property value:

The sales comparison approach refers to the most common and most suitable properties with similar characteristics to the property you are assessing, which has been sold in the last four to five years. This approach can be practical for properties that have a low turnover rate and more minor price fluctuations.

If there is no similar sales information or any other data available about comparable properties, then it’s recommended to use this method as an alternative:

Cost-based Approach – which is the total cost of constructing the property divided by expected or estimated selling prices.

This method is suitable for properties with a faster turnover rate due to changes in demand and highly competitive prices, where prices can change significantly based on minor variations in features.

Another approach is based on income, which can be ideal for investments with the following characteristics:

low risk, as it offers a steady and predictable income;
relatively high liquidity, in case of need to sell quickly

It also has lower rates of return because there are no capital gains from selling the property compared to other methods.

Due diligence:

A significant factor when assessing real estate investments is evaluating a potential investment, and it involves carrying out research to find relevant information.

It is also important for the real estate investor during this phase to establish whether they are competent enough to make an informed decision about the purchase in terms of their experience or knowledge.

Investment Goals and Investment Horizons

When a real estate investment does not have a clear purpose, the real estate investor can fall into an unexpected financial hardship, mainly if the home is mortgaged.

It is important to set a goal for the real estate investment and establish an appropriate time horizon.

This will help them when assessing their risk appetite, deciding on whether they would prefer capital growth or cash flow investments, and establishing monthly costs of living to make sure that they don’t overspend.

Plan your strategy based on the following broad categories that suit your purpose:

Purchase and self-use – The advantage of this is that the investor can live in it. So, you can save on rent while the property appreciates in value.
Purchase and rent – This is ideal if you want to take advantage of rental income but not be concerned about the upkeep of your property.
Hold vacant for investment purposes – If you are waiting for a good time to sell, this could work as well.
Invest Apartments or Commercial Property for Rental Income – This can be a good option if you don’t want to deal with maintenance, a tenant, and expenses like parking.
Option-to-purchase agreements (OPAs) – With this strategy, you are able to buy a property with an option to buy it. This is useful if you have a lot of cash but not a lot of time, as the purchase date can be delayed.

Profit Potential and Cash Flows
Essentially, cash flow refers to how much money is left over after the costs. Investing in real estate properties with positive cash flow is the key to earning a good rate of return.

The profit potential is the amount of money that could be made based on how much an investment has increased in value.

In order to maximize profit, it’s important to ensure a property will appreciate and increase in market value over time. In this scenario, you’ll have less risk than if you invested with debt financing. This is because your investment is being paid off through the cash flow of rental income.

The value can also be maximized by buying at a discount to its fair market value, which will allow you to sell for more than what was initially invested in it.

The following profit and expense modes should be modeled:

Cash flow from rentals
An intrinsic value increase resulting from price appreciation
Depreciation is a valuable tool for reducing tax
A renovation before selling gets a better price through cost-benefit analysis.
Analyze an appreciation vs. a mortgaged loan

Consider Leverage Carefully
Loans are convenient, but they may come at a high cost. In exchange for utility today, you will pay interest over a number of years. Do not take on excessive amounts of debt, which is also called over-leverage, or borrow too much. Even experts in the real estate sector can encounter difficulties in an adverse market and where financial limitations and poor liquidity can cause the project to fail.

Leverage is a double-edged sword. It can help you get ahead, but it can also push your recovery point down the road to insolvency and bankruptcy if not used wisely. Carefully consider how much debt you are willing or able to absorb before taking on more than what you can reasonably manage.

An intrinsic value increase is the most lucrative way to make money with real estate.

An intrinsic value increase is a big deal because it means that you are getting your original investment back and earning more on top of that! When evaluating an opportunity, consider whether this type of return will be possible.

Newly Constructed Property vs. Existing Property

With a newly constructed property, you usually get a lot for your money. You can design the interior to your liking, and the amenities are modern. But, it’s still a risk because you cannot predict how the market will change in the future.

With an existing property, you can rent out different rooms to make more money with your investment and also increase cash flow by adding on-site amenities like laundry or parking spaces for residents of that building. It might be easier to find renters too.

However, this investment is less risky because you have a history of how the property performs and what to expect in the future.

When considering the purchase of new properties or existing properties, be sure to consider the following:

Research the reputation of the company for new investments and any projects the firm has completed in the past.
Review real estate titles, appraisals, and recent surveys on existing properties.
You need to estimate the maintenance costs, unpaid dues, and taxes. Cash flow can be severely impacted by these kinds of costs.
Check if the property is leased under a rent-controlled arrangement, rent-stabilized arrangement, or a free-market arrangement before investing. Do you expect the lease to expire soon? Does the tenant have favorable renewal options? Who is the owner of the furniture?
Make sure items that will be included in the sale are of good quality.

Real Estate Investing Indirectly
Not everyone is suited for managing properties over a long time horizon. There are indirect real estate investment opportunities available.

Think about real estate investing in other ways:
Real Estate Company Stocks
Mortgage Bonds
Real Estate Investment Trusts
Mortgage-Backed Securities
Real Estate Sector Focused Mutual Funds & ETFs

Depending on your investment goals, you can use different types of investments to get started.

The key is being able to invest a fairly small amount with the potential for higher returns as time goes by.

Real estate investing indirectly may be an easier first step than buying property yourself.

Mind Your Credit Score
Getting a mortgage depends on your credit score, and it impacts the terms you get. Credit-worthy buyers can get better rates in exchange for their higher credit scores, which could translate into substantial savings in the long run.

With an 800 or above credit score, you will be able to qualify for a better mortgage. Your credit score may be improved if necessary.

You can check your credit score for free on Credit Karma and get a sense of what other lenders might see. If you know how much house you want to buy, it could be worth getting pre-approved before shopping around in person with different lenders.

Real Estate Market as a Whole

The best investment strategy is to buy low and sell high, similar to other types of investments. It pays to keep an eye on trends in the real estate market. The interest rates for mortgages are also important since you can reduce the borrowing costs.

Get the latest information and stats on:
Newly constructed properties
inventory of properties
rates for mortgages
flipping activity
the price of a home and its sales in your preferred market

Why Investing in Real Estate Is a Smart Move?

One of the most significant benefits of real estate investing is your cash flow, or how much you get from your rental properties after paying all your expenses. Since the value of your rent increases over time, as does the value of the mortgage, your cash flow will rise.

The return on investment in real estate is also high. One of the main reasons for this is that homes can grow in value over time and provide income from renting it out or selling it at a much higher price than what you bought it for.

Without Any Money, How Can I Get Into the Real Estate Market?

People might think that you’ll need to have loads of money to start real estate investments. This isn’t the case. There are many ways to invest in real estate even if you don’t have money, such as using a loan or gift from family members.

Aside from buying a whole property and selling it after renovation, you can buy a duplex and live in one unit while you can have another person rent the other.
This is also a great way to get started and not have the pressure of owning an entire property alone.

There are many different ways you can buy fractional shares in homes, allowing for quick entry into real estate investment without high amounts of money.

Are There Any Advantages to Buying Real Estate?

Real estate investors make money from the value of their property increasing. They also get a deduction on the tax year.

Some people make money from real estate by buying it quickly and then renting it out to others who want or need somewhere to live, such as someone looking for an apartment while waiting to move into their new home.

Buying rental properties can increase your income.

Real estate investing can also be a good way to create an emergency fund, and it will help you build your credit score.

If you have the money for a down payment on a property, then renting out that property is an excellent idea because renters often don’t pay enough attention to upkeep. This means that it could potentially be a profitable investment for you.

The housing market often rises and falls, which is why it’s not always the best idea to buy property at its peak of value because this means that in future years your property will decrease in value and may even become worthless if the market crashes.

In order to get started investing in real estate, make sure to do your research first!

What Makes Real Estate Investments Better Than Stocks?

Stocks are complex. You need to know how stocks trend works to be able to gain an actual profit. Meanwhile, for real estate, all you need is a house and some money.

Of course, you’ll need research on the property before you buy it. However, real estate is still a much more stable investment than stocks because of the stability of housing prices and property values in comparison to stock prices.

The housing market often rises and falls, which is why it’s not always the best idea to buy property at its peak of value because this means that in future years your property will decrease in value and may even become worthless if the market crashes.

In order to get started investing, make sure to do your research first!

What Makes Real Estate Investments Better Than Stocks?

Stocks are complex. You need to know how a stock’s trend works to be able to gain an actual profit. Meanwhile, for real estate, all you need is a house and some money.

Of course, you’ll need to research the property before you buy it. However, real estate is still a much more stable investment than stocks because of the stability of housing prices and property values compared to stock prices.

Shield My Deal has everything you need to get started on a real estate investment.

Need help getting around the market? Shield My Deal can guide you on the different things you’ll need before you can start making money!