Tips For Your Real Estate Finance and Investment Strategy

September 2, 2010 by admin  
Filed under Real Estate Financing

You may have decided you would like to start investing in property but you are not exactly sure how to go about it. One thing you should do before you begin is to research the financing options that may be available to you.


Most people, when they first begin their endeavor with property investing, find that financing is their only means of purchasing property. The following is some information regarding real estate financing and investment strategy that may be beneficial to you.


When you hear the term “leverage” applied to real estate financing and investment, you will find that this term simply means to use borrowed money for financing your property investment. Your initial investment will be the money that you use for a down payment.


In order for this leverage to be beneficial in your real estate finance and investment strategy, you will want to secure the borrowed money at a low-interest rate and make sure the term of the loan is over the longest period of time that is possible. This is to avoid yourself from being tied up in the property and having least money for your own or other investment usage.


You do have to remember, however, that the risk of your investment is tied in directly with leverage. If you place a small down payment on the property, the leverage is high and the ratio of the amount owed to the value of the property is high, making the property a high risk. The more money you put as a down payment on the property, the lower the leverage and the lower the risk.


Many, in their real estate financing and investment strategy, use pyramiding to acquire more properties. What this simply means is that you are using the equity on one property to help you purchase another.


For example, you purchase a property for $100,000 by making a down payment of $20,000 and borrowing $80,000. The properties value at the time of the purchase is $110,000. Six months later, you have a positive cash flow of $1,000 a month on the property and its value has increased by $40,000 due to your renovations. You now have equity of approximately $70,000 or more in the property.


You take out a home equity loan of $30,000 and this is used for the down payment of another investment property. This is also known as pyramiding and is a real estate finance and investment strategy used by many.


Pyramiding through sale is also another real estate finance and investment strategy used by many, as well. In this method, when your property’s value has increased, you sell instead of taking out a home equity loan.


In the example above, if the same property was sold for its value of $150,000, you would use the money to pay off the initial loan of $80,000, deduct your initial investment of $20,000, what you have paid in interest and principal, as well as the cost of renovations, to discover you’ve made a profit of approximately $25,000 to $30,000 in a matter of a six-month period. This money can then be used as a down payment on another property.


Before you begin investing in property, it is crucial to understand what real estate finance and investment strategy you plan to use. However, it is also important to understand that property investment comes with risk. Research the facts and figures before you make any decision with your real estate finance and investment strategy.

Get Your Real Estate Investment Guide for Your Success Now. Learn More About Fundamentals, Financial Model and Investment Tips of Property Investment. Find Out Which Real Estate Investment Strategy Gives You Good Return.

1031 Exchange or Real Estate Investment Trust?

September 2, 2010 by admin  
Filed under Real Estate Investing

Over the last several years, real estate has been as hot as any other investment. It wasn’t until recently that real estate cooled a bit. During this time, we’ve all heard the stories of the easy money made investing in real estate. When money was easy, and there was no end in sight to the real estate boom, people were flipping houses like crazy. For many of these individuals, the 1031 exchange money could not be any easier. However, the times have changed. The downturn has taught even the most bullish real estate speculators that real estate can also go down in value. More than ever, investing in real estate, takes professional know-how, time, and resources to successfully invest in real estate. So, how does the average person invest in real estate, this day and age?

Well, there is a way, and it’s been around for quite some time. It’s called a Real Estate Investment Trust, or REIT. A Real Estate Investment Trust is a way for the small investor to invest in big real estate. A Real Estate Investment Trust is an organization that is set up to manage and invest in real estate professionally. You can purchase a Real Estate Investment Trust (REIT) via the stock exchange in the form of a stock, or privately. Private Real Estate Investment Trusts typically require that certain suitability criteria be met. Also, private REITs are typically longer-term investments, with liquidity considerations. Public Real Estate Investment Trusts can be bought and sold on the stock exchange and are considerably more liquid than their private counterparts.

Investing in a Real Estate Investment Trust can come in many forms. You can purchase a Real Estate Investment Trust that focuses on large-scale commercial real estate, for example. This would allow you to take part in major real estate deals involving 100 plus story buildings, that would otherwise be available to the ultra rich. Some Real Estate Investment Trusts may have their focus in apartment buildings or even new housing construction. The point here is that you can choose your Real Estate Investment Trust sector through one of these REITs. If you want a more professionally managed approach there are a large number of REITs actively managed through the purchase of mutual funds. This can provide for diversification, and individual real estate sectors.

Properly set up Real Estate Investment Trusts are tax-advantaged. This means that they are not taxed at the corporate level. However, they must be set up properly. It is required that REITs invest 75% of their funds in real estate. These requirements are met by income derived from mortgage or rent interest. Essentially, you’re relying on other parties for their expertise in the real estate arena. Going at it alone is tougher than ever these days. You have the typical headaches, like qualifying for a 1031 exchange, property taxes, escrow, title insurance, and so on. But, that’s really the easy part. When the real estate market only went up, the biggest worry for speculators was how to take advantage of a 1031 exchange and save on capital gains. Now, there’s much more to worry about, as real estate not only goes up, but it can certainly come down.

It’s important to keep in mind that Real Estate Investment Trusts also come with inherent risks. If real estate values plummet, and you have a large percentage of your assets exposed to Real Estate Investment Trusts you may experience declines, as well. This is where diversification is very important. The standard Real Estate Investment Trust me diversify you within different types of real estate, but you should always practice further diversification. Investing in different asset classes, sectors, and the life will provide you with further diversification. Make sure to work with a qualified investment advisor or do your due diligence when investing in any type of Real Estate Investment Trust.

If you would like more information on the ins and outs of the Real Estate Investment Trust you can visit the site for more details. Additionally, you can find more on how the 1031 exchange work as well.