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Submitted by: Ivon Smith
Investment Property Selection
There are four main factors when it comes to making your real estate investment in the selection of your real estate purchase, which you need to think about:
1. The Type of Real Estate you are searching fo
2. Your present return needs
3. Your availability of capital
4. How it fits in with your total investment plan
These considerations form the guidelines which fully determine what to buy, how to buy, and why to buy real estate. Each of these will be considered separately.
Real Estate Investment Options
There is lots of money in real estate. But there is also a big risk if not played correctly. When I first started to take an interest in real estate investment, I didn’t realize there were so many options. This write-up will run you through the most common types of investments.
Commercial real estate this is actually a pretty good place to start because it tends to be relatively secure when compared with some of the other forms of real estate investing. The rather large downside to this, however, is that this investment vehicle requires a massive investment up front and as a result is something that most real estate investors don’t consider until they’ve built up a strong portfolio that they can leverage to provide the needed funding.
Residential Rentals is not as high-powered as being a commercial real estate mogul, but it is certainly a solid model for establishing a comfortable retirement plan. This is actually where most people get started in the real estate game because it’s not hugely difficult to buy an investment property and then positively gear it so that rentals pay off the mortgage and property management expenses. Being a landlord (even if you farm out the property management to a real estate agency or a professional Property Manager) is a long-term commitment with potentially very nice payoffs. It is also a good model for the high-risk averse investor to pursue.
Flipping this basically means is buying a property and turning around and selling it on – with or without renovating it, e.g. this kind of real estate investment requires an extremely detailed understanding of the property market in that geographical area and the ability to make quick, hair-raising decisions involving enormous sums of money.
Buying off the plan or Pre-Construction is even riskier than flipping, but has become insanely popular in the last 5 to 10 years. This is when the money raised by selling properties before they’ve even been built. It is what funds the actual construction of the property usually a block of residential apartments. This mode of investment is, of course, wide open to scam artists setting up fake property development companies or even just unscrupulous property developers disappearing with all that money and never even starting construction!
On the other hand, if it is legitimate, the real trick is in identifying an area that has a housing shortage or is set to boom in the next few years (possibly because of new infrastructure, for example). In these cases, the profits to be made are considerable. So, like any form of investing, the risk is usually in proportion to the potential rewards and the time-frame in which they are delivered.
Lease to Own is probably a better option for most non big-time investors. The whole model of leasing a property that you’ll eventually be able to call your own is very attractive to many people who don’t qualify for a mortgage (young families, for example). You can charge a little more than what you would charge to rent the property, with the extra going to pay off the principle and the agreement that they purchase the property for an agreed sum after a period of time.
For you (the owner), it also reduces maintenance costs. It’s more likely your tenants will take better care of the property because they’ll probably think of it as “theirs” Which means that if they decide to move somewhere else and not actually go through with the purchase of the property, you will have far less drama and fewer problems getting the place ready for new tenants.
There you go! I Hope that my article helps you decide when it comes to Real Estate Property Investment.
About the Author: Ivon Smith entered the real estate profession in 1986 when interest rates were at an all time high of 18 20%. Through hard work and dedication, she rose to the top of the ranks, becoming the top 25 in Canada for ERA in 1990.