What Is Real Property Investment

Can Owning Property Make You Rich

Investors Buy Up Metaverse Real Estate in Virtual Land Boom | WSJ

When you invest in real estate, you could achieve a million-dollar or greater net worth simply because the properties you own and manage have gone up in value over the years. Few of us have the cash on hand to buy the property outright. This is why many put a down payment down on a property before repairing it.

Real Estate Investing Is A Long Grind

The returns from real estate investing generally only accrue over an extended period of time, and only if you purchase judiciously and invest enough to properly maintain properties. Also, depending on the types of properties acquired and the nature of your tenants, it may be necessary to spend a substantial amount of time managing the properties. If you plan to manage properties directly, this may mean that you will not be able to take any vacation time for years.

Use Real Estate To Create Retirement Income

Real estate is a popular way for individuals to generate retirement income. In fact, its Americans favorite long-term investment, according to a 2021 Bankrate study.

That popularity partially relies on real estate producing a steady stream of income, as investors collect a regular monthly rent from their tenants. For retirees, a steady income is exactly the kind of security that theyre looking for when not fully employed.

And retirees have upside on that income. Over time, a well-managed property can increase its rents, putting more money into investors pockets each month. The property can also increase in value, so when it comes time to sell or even invest in another property, theres equity that can be tapped. Of course, investment property has other advantages, especially around taxes.

If you dont want to get into managing property directly, you can buy it via real estate investment trusts in the stock market and let a professional manager deal with all the problems. REITs are tremendously popular with retirees because of their steady dividends.

Recommended Reading: How To Start Investing With 500 Dollars

Generate Wealth & Build Equity

The first of many advantages of investing in real estate is the power of equity. When you own a house or piece of property, it naturally appreciates, or increases in value. As you pay the mortgage down and allow the house to appreciate, you build equity. Equity is an asset part of your net worth, making it one of the most straightforward ways to generate wealth. For example, according to FRED, the value of homeowner equity nearly tripled between 2011 and 2022.

With equity, you have multiple options to generate cash flow and get a return on your investment . If you sell the home at the right time, you can get a large profit. On the other hand, you can use equity as leverage to increase your investment portfolio even further. With equity from one property, you can buy a rental property to generate monthly income and double your gains from building equity.

Specific Advantages To Investing In Real Estate

I. Financial Leverage

Give me where to stand, and I will move the earth. said Archimedes, referring to the notion that with a long enough lever he could move the earth itself. The power of leverage is that great. This is as true in finance as it is in physics. Leverage is simply the extent to which debt is used to finance real estate. For example, let us assume that an individual purchases a house for $100,000. If bank mortgage financing is available, the owner may put down as little as 5% of the purchase price and borrow the rest . Now, let us assume that the house rises in value to $110,000. This results in a gain of 10% on the house. By employing leverage, the owner of the house experiences a gain of 200%. This is due to his $5,000 equity investment growing to $15,000. Leverage makes the investors money work harder.

Leverage is not unique to real estate. Stockbrokers typically offer margin financing on stocks bought through their brokerage. However, more leverage is generally available for real estate investment. This is because that while the commercial real estate market certainly has its ups and downs, it has nothing like the volatility of the stock market. Lenders feel more secure about their ability to recover their obligations when the value of those obligations is secured by a mortgage to real property whose value stays relatively constant. Successful real estate investors optimize their leverage.

II. Inflation Resistance

III. Tax Advantages

= 4.8%.

Also Check: Apps For Investing For Beginners

Why Is Real Estate Considered To Be An Inflation Hedge

Home prices tend to rise along with inflation. This is because homebuilders’ costs rise with inflation, which must be passed on to buyers of new homes. Existing homes, too, rise with inflation though. If you hold a fixed-rate mortgage, as inflation rises, your fixed monthly payments become effectively more affordable. Moreover, if you are a landlord, you can increase the rent to keep up with inflation.

Real Estate Crowdfunding Statistics

Even though real estate crowdfunding it still a relatively new means of investing in real estate, it is already a multibillion-dollar industry. 3

In fact, investors on RealtyMoguls real estate crowdfunding platform alone have already invested more than $250 million in real estate deals collectively valued at well over $1 billion.

For more educational content on this topic, visit our Knowledge Center.

How To Get A Loan For A Rental Property

1. Make sure you are ready on your end cash down payment and credit worthy.

2. Find a property in an area that has good rental incomes vs purchase prices. Many investor areas support the 1% rule. The 1% rule says you should be getting 1% of the purchase price per month in rental income.

3. Find a lender, like HardMoneyMan.com LLC, that specializes in lending to investors .

4. Make sure you have all of the numbers needed to evaluate your deal purchase price, rental income based on 12 month market rents , yearly property taxes and the yearly property insurance.

5. Contact your lender to run the property debt service numbers , to find out how much debt this property can handle.

Debt Real Estate Investing

Investopedia Video: Investment Real Estate

With debt real estate investing, you don’t own the property. You are loaning money to the owner.

Hard Money Loan

Typically, this is some type of a mortgage, often called a hard money loan when issued by a private investor for a short time period. You generally take first lien position, which means if the owner stops paying you every month, you can foreclose on the property and sell it to get your principal back Even if you lose money, it is very rare to lose all of it because the property is still worth something, even if the rental business it is a part of is a money loser.

Read Also: Merrill Edge Guided Investing Fees

How To Get An Investment Property

The process for buying an investment property depends on its type. As an individual investor, youll most likely purchase a single or multifamily home rather than a large complex or commercial property. And in that case, the process of obtaining financing isnt all that different from financing a personal residence.

First, many of the same lenders that offer mortgages on personal residences also offer financing for investment properties.

To qualify, youll have to meet many of the standard mortgage requirements, including:

A good credit score
A debt-to-income ratio of less than 36%
Proof of stable income in the form of W2s, pay stubs, or tax returns

Real Estate Syndication Structure

In a real estate syndication, the general partner finds the deal and oversees purchase, management, and selling. They take out an investment property loan to cover some of it, put some of their own cash in the deal, and raise the rest from limited partners.

The GP usually builds in some extra fees and returns for themselves to compensate them for their trouble. For example, they might collect an acquisition fee of 1-3% of the purchase price or a disposition fee when they sell the property.

They also structure the returns so that the more the property earns, the greater their cut.

For example, the limited partners might get an 8% preferred return on all revenue. That means that we get paid the first 8% in returns, before the GP gets a dime. Above that 8% threshold, there could be a 70/30 split on returns up to 20%, with 70% of returns coming to us LPs and 30% going to the GP. Over 20% annual returns, the split might drop to 50/50.

In this example, a property earning a 25% annualized return would break down profits like so:

Limited Partners: 18.9% returns
General Partner: 6.1%

This kind of arrangement is called a waterfall, as the share of profits change once they hit certain thresholds.

In practice, the GP usually gets their big paycheck once the property sells. That year, the property might generate an 80% return, and most of that gets split 50/50.

As for the legal structure, the sponsor creates a legal entity such as an LLC and all partners get listed as partial owners.

Saint John New Brunswick

No other place compares to New Brunswick. This province in the Maritimes is stunning and reasonably priced.

The average home price in Saint John, which is one of the most affordable housing markets in the country, is just under $200,000. The market price in Saint John makes it one of the best places to invest in real estate in Canada.

In addition, Saint John has a thriving rental market and a respectable economy. With a healthy $51,021 in GDP per capita, the region has a respectable economic impact when compared to other Canadian cities. The largest city in Canada, Toronto, has a per capita GDP of just $57,000.

Saint John has excellent deals if youre looking for one. Property in the city can be found for less than $100,000, which is not improbable. Even though the house will almost always be small , it can still be rented for around $800 per month. Its possible that your investment would have a great return on it.

What Are The Benefits And Risks Of Reits

REITs offer a way to include real estate in ones investment portfolio. Additionally, some REITs may offer higher dividend yields than some other investments.

But there are some risks, especially with non-exchange traded REITs. Because they do not trade on a stock exchange, non-traded REITs involve special risks:

Also Check: How To Invest Money In Lending Club

Real Estate Investing Vs Property Investing: Is There A Difference

The terms real estate and property are often used as one and the same, something that’s particularly apparent when discussing investment opportunities across the Atlantic where real estate is the dominant term for anything property-related.

And whilst here in the UK property is the default phrase, there can be a subtle difference between the terms, particularly in the world of property investments – and it’s often seen at different ends of the investing landscape.

For instance, property investing by groups such as institutional and corporate investors are at a different level to everyday and even many professional investors. This is due to the money they have readily available to invest, what they want to achieve by investing in the sector and also the type of assets theyre investing in within the same class.

Importantly, for the most part the terms are interchangeable and any distinction is generally only seen within specific circles in the investing landscape. But with that said, it can be interesting to understand what the distinction is and when it’s used.

Real Property Vs Personal Property

The law makes a clear distinction between real property and personal property. Real property is immovable. It includes the land, everything that is permanently attached to it, and the rights that “run with” the land.

Personal property, on the other hand, is movable. It is defined as everything that is not real property, such as your clothes, furniture, cars, boats, and any other movable items that aren’t attached to real estate.

Types Of Real Estate Investments

Real estate is divided into several broad categories, including residential property, commercial property and industrial property.

Real estate in most countries are not as organized or efficient as markets for other, more liquid investment instruments. Individual properties are unique to themselves and not directly interchangeable, which makes evaluating investments less certain. Unlike other investments, real estate is fixed in a specific location and derives much of its value from that location. Industrial real estate With residential real estate, the perceived safety of a neighbourhood and the number of services or amenities nearby can increase the value of a property. For this reason, the economic and social situation in an area is often a major factor in determining the value of its real estate.

Numerous national and international real estate appraisal associations exist for the purpose of standardizing property valuation. Some of the larger of these include the Appraisal Institute, the Royal Institution of Chartered Surveyors and the International Valuation Standards Council.

Investment properties are often purchased from a variety of sources, including market listings, real estate agents or brokers, banks, government entities such as Fannie Mae, public auctions, sales by owners, and real estate investment trusts.

How To Buy And Sell Reits

Which Rental Property Should You Buy First? | Real Estate Investing

You can invest in a publicly traded REIT, which is listed on a major stock exchange, by purchasing shares through a broker. You can purchase shares of a non-traded REIT through a broker that participates in the non-traded REITs offering. You can also purchase shares in a REIT mutual fund or REIT exchange-traded fund.

Recommended Reading: What Cryptocurrency Should I Invest In Now

Raw Land Investing & New Construction

Raw land investing and new construction represent two types of real estate investments that can diversify an investors portfolio. Raw land refers to any vacant land available for purchase and is most attractive in markets with high projected growth. New construction is not much different however, properties have already been built on the land. Investing in new construction is also popular in rapidly growing markets.

While many investors may be unfamiliar with raw land and new construction investing, these investment types can represent attractive profits for investors. Whether you are interested in developing a property from start to finish or profiting from a long-term buy and hold, raw land and new construction provide a unique opportunity to real estate investors.

Investors should be prepared to complete extensive market research to maximize profits when investing in raw land and new construction. This will ensure you choose a desirable area and prevent the investment from being hampered by market factors.

Is Real Estate Crowdfunding A Safer Investment

No investment is guaranteed, and there are risks with all investing including Real Estate Crowdfunding. However, the more sophisticated crowdfunding platforms thoroughly review every real estate deal as well as the team behind it before making it available on their sites for investors.

Additionally, the real estate opportunities offered on crowdfunding platforms do offer the general comfort of investing in a physical piece of property, as opposed to a stock or bond or other nonphysical asset.

Also Check: Reasons To Invest In Cryptocurrency

Interest Rates On Investment Properties

A rough estimation is that borrowers can expect to pay between .5 and 1 percent higher interest rates for loans on investment or rental properties. Interest rates depend largely on the borrowers financial and credit situation however, youll generally pay more in interest for investment properties than you would for a home loan because lenders are assuming a slightly higher level of risk.

The thinking is that borrowers are more likely to default on loan payments for investment properties than their primary residences in tough economic times, which makes these types of loans riskier for lenders. They charge higher interest rates for that elevated risk, and borrowers must meet some strict qualifications in order to qualify, such as a larger minimum down payment.

Is A Car Real Property

A car is tangible personal property, not real property, as the car presumably can be moved. Unlike a great deal of personal property, a car can be used to secure a loan. A car loan is secured by the vehicle, as a mortgage is secured by a house.

Law Library-American Law and Legal Information. “Estate-Nonfreehold Estates.”

Don’t Miss: New Zealand Real Estate Investment

The Downsides Of Real Estate Investing

Unfortunately, real estate investing is not all puppies and rainbows. There are downsides, too. Let’s go through them.

#1 Illiquidity

Many real estate investments, particularly those not traded in the public markets, cannot be readily sold. It might take months or even years to liquidate them. Real estate partnerships often tie up your money for anywhere from 1-10 years. While investors hope there is a premium paid to them for this illiquidity, there is no guarantee.

#2 High Transaction Costs

If you have ever bought or sold a house, you know transaction costs can be high. The realtor commission alone may be 6% of the value of the house, and that’s not including appraisals, title insurance premiums, and attorney costs.

#3 Leverage

Most real estate purchases involve the use of significant amounts of debt. In a downturn, debt amplifies your losses and makes it easy to lose even more than your entire investment.

#4 Hard Work

Many investments require little work at all. One can buy every stock in the world in 30 seconds with a few clicks of a mouse by simply purchasing some index funds. Purchasing and managing your own real estate properties has many aspects of a second job.