The Most Important Factors For <b>Investing</b> In <b>Real Estate</b> - Investopedia | Real Estate Investing |
| The Most Important Factors For <b>Investing</b> In <b>Real Estate</b> - Investopedia Posted: 06 Nov 2014 09:13 AM PST Compared with other types of investments, real estate investing involves a relatively favorable risk/reward profile, but with relatively low liquidity (ease of entry and exit). Let's see some of the most important factors to be considered for investing in real estate. I. Location of the Property Why is it important? The age old punch line "Location, Location, Location" still rules and remains the most important factor for profitability in real estate investment. Proximity to amenities, peaceful conforming areas, neighborhood status, scenic views, etc. are major factors for residential property valuations; while proximity to markets, warehouses, transport hubs, freeways, tax-exempt areas, etc. play an important role for commercial property valuations. What to look for? A mid-to-long term view, about how the locality is expected to evolve over the investment period. Today's peaceful open land at the back of a residential building may be developed into a noisy manufacturing facility in future, making the residential valuations less profitable. It is advisable to conduct thorough check about ownership, type and intended usage of neighboring areas, establishments and free land in the locality. II. Valuation of the Property Why is it important? Real estate financing during purchase, listing price during sale, investment analysis, insurance premium and taxation - all depend on Real estate valuation. What to look for? Commonly used Valuation Methodologies include:
III. Investment Purpose & Investment Horizon: Why is it important? Given the low liquidity and high value investment in real estate, lacking clarity on purpose may lead to unexpected results including financial distress, especially if the investment is mortgaged. What to look for? Identify which of the following broad categories suits your purpose and prepare yourself accordingly:
IV. Expected Cash Flows & Profit Opportunities: Why is it important? The investment purpose & usage influences cash flows and hence profit opportunities. What to look for? Develop draft projections for the following modes of profit & expenses:
V. Be Careful with Leverage - Know the Pitfalls: Why is it important? Loans are convenient but may come at a big cost - you commit your future income, to get utility today for a cost of interest spread across many years. Real estate financing needs higher amounts and hence has higher exposures. Understanding it properly allows you to benefit from it to the maximum, while ignoring the risks can lead to major pitfalls. What to look for? Depending upon your current & expected future earnings and paying capability, consider the following:
VI. Investment in New Construction vs Existing Establishments: Why is it important? New construction properties usually offer attractive pricing, the option of customization, clearly documented amenities and clear titles. The investor has to deal with only the construction company as a counterpart. Risks include delay in possession, increase in costs, no awareness about neighborhood, etc. Those on resale have vice-versa factors and may need a more thorough check on ownership, documents and legal matters. What to look for?
VII. Indirect Investments in Real Estate: Managing physical properties over a long term horizon is not for everyone. There are also a few alternatives to indirectly invest in the real estate sector and aim to reap the benefit. What are the Options?
The Bottom Line Real estate investments offer a good high value risk-return profile. Thoughtful consideration of the above mentioned factors in mind will enable investors to reap the benefits while mitigating the risks.  |
| How to Make Money in <b>Real Estate</b> with $50K — The Dominion Group Posted: 25 Mar 2013 11:50 AM PDT $50K is an awkward amount of money in real estate investing. It's a very popular number, though. For an investor with $100K-$1mm of investable assets (a ton of people), it feels like the right amount to invest in order to get diversification into real estate without tying up your whole portfolio. $50K is awkward, though, because it's enough to do a deal, but probably just one at a time. As a result, investing with just $50K is stressful because you can't afford to make a mistake. In real estate, not making a mistake ever is impossible. So a lot of investors looking to invest $50K are frozen, scared to make a move. To add insult to injury, there are a number of investing options that are off the table because, #1 you're not working with enough money to be a full time investor so you've got limited time and energy, and #2 you don't have enough money to do a deal yourself without borrowing money. These things put you at a disadvantage in a competitive market environment. However, these obstacles can be your greatest asset, because they force you to team up with experts. The catch is that working with the experts costs money – so you'll have to share. You do have a menu of options to choose from and we see lots of deals get done by investors in this category. I've split the realm of investors into three kinds of investments: rental properties, retail flips, and simple return on investment. YOU WANT RENTAL PROPERTIES: Factors Working For You: You have credit & income, so you'll be able to qualify for a conventional refinance loan. Huge plus. Interest rates are still super low, and prices are still depressed, so the cash flow from the rental will be excellent. Factors Working Against You: Finding the right deal, renovating the property, managing the house once it's rented, and having to borrow money to get from A to Z. What We Recommend: There are two options here: turnkey experts and turnkey companies. Turnkey experts are individuals that will guide you through the process of buying a house, renovating it and working with a management company. They are consultants and charge $5K-$10K. Call hard money lenders to find them – hard money lenders know the good ones because these lenders have seen the experts get investors in and out of their loans successfully. The hard money lender is the other piece of the puzzle here. Hard money lenders charge effective rates of interest in the high teens. View them like the turnkey expert as project costs. Your plumbing costs $5K, your drywall is $4K, your turnkey expert costs $7.5K and your loan costs $6K. Turnkey companies, on the other hand, deliver you a finished, rented property. They make money by charging a mark-up on the price of the house. There are good turnkey companies and bad ones. Ask for references. Action Items to Get Started: #1 – Decide whether you are comfortable with going through the renovation process with the help of a consultant or prefer a turnkey finished house from a company. #2 – If you go with a turnkey expert, call hard money lenders and ask for referrals. #3 – Interview the turnkey experts and review their track records. Visit their projects in progress. #4 – Pick one that you're comfortable with. They'll walk you through the process from there. YOU WANT TO FLIP HOUSES: Factors Working For You: You have cash to invest. Renovated houses are selling like hotcakes right now. Factors Working Against You: Finding the right deal, renovating the property, selling it once its done, and having to borrow money to get from A to Z. What We Recommend: Find an expert who has a track record of making his investor money. I can't emphasize enough how important track record is. Go look at some of their current projects and properties on the market to verify that what you hear on the phone matches what you see. Action Items to Get Started: #1 – Find the hard money lenders in your area. Google, REIA meetings, etc… #2 – Call the hard money lenders and ask for referrals to flipping experts that work with investors. #3 – Interview the experts and review their track records Visit their projects in progress. #4 – Pick one. They'll walk you through the process from there. YOU JUST WANT A PREDICTABLE RETURN ON YOUR MONEY, HEARD THAT REAL ESTATE IS A GOOD PLACE TO INVEST RIGHT NOW: Factors Working For You: You have cash to invest. Factors Working Against You: You're frozen because you don't like the risk of having to choose just one project. What if this deal goes bad? You would feel better with some diversification. What We Recommend: Loan money to one of the hard money or turnkey companies that I described above. These companies generally pay between 6%-10% interest only to their investors. You'll get a check in the mail each month. Beware of companies offering much higher interest rates – Ponzi schemes do still exist. Track record is again the most important factor. How long have they been in business? How did they do during the downturn of 2008-2010? Ask for references. Visit their office. Action Items to Get Started: #1 – Google hard money lenders and turnkey providers in your area, call them and find out if they're looking for additional capital. #2 – Conduct your due diligence and speak with their references. $50K is an awkward number, but it's the right number for a lot of people. These options should help to get you off of the sidelines, participate in the real estate recovery and not expose you to undue risk. |
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