Financial security is a goal that everyone wishes to reach, and there are certainly many ways to achieve that goal. Buying and owning real estate is one of the most exciting as well as profitable strategies to obtain that much sought after lucrative return on your investment.
Prospective real estate owners can use leverage to buy a property by paying a portion of the total cost up front. Leverage is the use of various financial tools or borrowed capital to increase the potential return of an investment. After acquiring property, you can pay off the balance, plus interest, over time. Leverage gives you the ability to control the asset the moment the papers are signed giving both real estate “flippers” and landlords the opportunity to take out a second mortgage on the property in order to make down payments on additional properties. A traditional mortgage generally requires a 20% to 25% down payment. But in some cases a 5% down payment is all you need to purchase the entire property and you are on your way!
The four ways in which you can invest your hard earned money through real estate are: 1) becoming a landlord for rental properties, 2) real estate trading, 3) real estate investment groups, and 4) real estate investment trusts or REIT’s.
Becoming a landlord of rental properties can supply you with a regular income while at the same time maximizing your available capital through leverage. Also as an added benefit, many of the expenses associated with rental properties are tax deductible. Any losses can offset gains in other investments. Even so, rental property can be riddled with constant headaches. However, once the mortgage has been completely paid off, the majority of the rent becomes all profit. Still, the rental income you receive as a landlord is not the only focus. Ideally, a property appreciates over the course of the mortgage, leaving you with a more valuable asset than you started with.
As an alternative to managing rentals as a landlord, real estate investment groups would be ideal for you. This is a much more hands-off approach to real estate investment, but it nevertheless provides you with that added income as well as appreciation. Real estate investment groups are like small mutual funds that invest in rental properties. A company will buy or build a set of apartment blocks, condos, or parcels. The company will then allow investors to purchase them as rental properties. In exchange for finding tenants, handling maintenance, and other responsibilities, the company receives a portion of the investors’ monthly rent proceeds. While these groups are theoretically a safe way to invest in real estate, they are vulnerable to the same pricey membership fees that sometimes haunt the mutual fund industry.
Real estate trading or “flipping” is another supplemental way to invest in real estate, usually best for people with significant experience in real estate valuation and marketing. Real estate traders purchase properties and hold on to them for a period of time after which they hope to sell for a profit. Flipping requires capital and the ability to either do or oversee repairs as needed to get started. Real estate trading does have a shorter time period during which your capital as well as your time are tied up in the property. Flipping can produce significant returns depending on the market conditions, even in shorter time frames. Be aware that real estate trading requires a deeper market knowledge often times paired with a shot of good luck. Hot markets can cool unexpectedly, leaving short-term traders with losses or long-term headaches. Flipping is the wild side of real estate investment, and pure property flippers often do not invest in property improvements. Instead, they buy properties that are undervalued or in a hot market. The investment must already have the value needed to turn a profit without any alterations or that property will be eliminated from contention. Flippers can find themselves in trouble if they cannot quickly unload a property. This is because they typically don’t keep enough uncommitted cash on hand to pay the mortgage over the long term. This can lead to snowballing losses.
Real estate investment trusts or REIT’s are for investors who want portfolio exposure to real estate without a traditional real estate transaction. REIT’s are basically dividend-paying stocks whose core holdings constitute commercial real estate properties with long-term, cash producing leases. So essentially, REIT’s are stocks without the advantage of leverage associated with traditional rental properties. A REIT is created when a corporation or trust uses investor’s money to purchase and operate income properties. REIT’s are like regular dividend-paying stocks and offer a solid investment if you are looking for a regular income. REIT’s allow investors into properties that are generally not feasible for individuals to purchase directly.
In this day in age, investing money and looking for ways to earn more is a popular concept. If your goal is to make money in Real Estate, it is essential that you hire a pro. Buying a property can be complicated. The right real estate advisor can guide you through the process and be there to assist you in making a great decision that works with your personal financial goals. Corder and Associates has a proven unblemished record in pairing buyers with their ideal property to maximize profits while limiting risk. Corder and Associates has an exclusive affiliation with LandLeader in Montana. LandLeader, a marketing company for elite real estate brokers who specialize in selling and buying land, aligns perfectly with the investor looking to purchase property and make significant gains. If you are interested in getting into an income producing piece of land, contact us today.