Real Estate Investment Suggestions For The Beginning Investor
Looking back over the years, investors seem to prefer real estate deals. Real estate has consistently offered an excellent long-term return on investments, in addition to providing a regular income in the meantime.
Real estate investing is not always a profitable venture, however. As a relatively recent example of the occasional real estate demises in history, the infamous 2008 economic crisis that affected the real estate industry has left people tremulous at best about investing funds in this area. Essentially, the real estate market collapsed because real estate investment, not home buyer purchases, over-inflated the price of properties, saddling all home buyers and investors with substantial mortgages. When it became obvious that the market could not support the inflated values, the crash occurred, devastating investors and home owners alike and leading to an overwhelming number of foreclosures.
Even though real estate has taken a substantial hit in recent years, it is still worth investing in it. With the possibility of loss in mind, it is important to consider several factors before going on a real estate investment spree.
The attractive feature about real estate is its ability to increase in value in relation to the rate of inflation. A property’s value typically climbs, with the occasional market collapse representing the unfortunate exceptions. As the value rises, the mortgage remains the same.
In addition, rent can be increased if inflation increases, which, again, results in more income for the investor. The demand for rental homes increases at times when inflation makes building or buying a home so expensive that not many people can afford it. The rent also increases when the demand does. Meanwhile, the mortgage does not increase. As such, the investor can make more profit while keeping the expenses constant.
If you need to go to the bank for a loan, the banks will often be willing to fund your investment. It will be necessary to acquire debt via a loan if you do not have the funds to buy the property. Paying cash for the property will bring you a lot more money in the long run than you would make with a loan. Paying cash means you will avoid the hefty interest payments and PMI (Private Mortgage Insurance) that is tacked to most mortgages. At the very least, commit a minimum of a 20% down payment to avoid the PMI insurance, which protects the bank in case you default on the loan.
As with all investments, timing is essential when it comes to purchasing real estate. The price of real estate does not always climb, regardless of how essential it is to the development of the community. Every once in a while, the real estate market will decline or even crash, just as the stock market does. Such declines are the best time to invest in property. By purchasing property at this time, you will make more money than if you purchase in a bull market. When prices are high, do not buy. Purchasing real estate at the peak of the market could result in a loss of money when the values eventually decrease.
In buying properties, you will naturally look for those in good locations with potential for long-term growth in value. If you purchase such a property, be prepared to keep it until the market increases. Holding on to properties in hopes of long-term gains has the potential to be risky if the bottom drops out of the market in the unforeseeable future. Some investors prefer to rent the property out or flip it as soon as possible.
Purchasing a property is typically just the start of an investment in real estate. Your acquired properties have to be developed or updated, managed, and utilized to gain profits, whether through sales or rental income.
By assessing all of the aspects associated with the property in question, you can make informed, and hopefully profitable, choices in your real estate investment. Never let your emotions have a hand in your decisions. Rather, look at rental prices, market value, and historic trends to inform your decisions. Who knows? You might be the next billionaire in the making if you make the right real estate investment decisions.