Real estate investing involves buying, managing, renting and/or selling property for profit. Investing in property has more benefits than the stock market and is more likely to make money. It is not however the ideal investment for everybody, but it is certainly worth considering.
To begin as a property investor you don’t need a specific qualification or university degree. Age does not matter you can begin at 18 or 80, many people start when they retire. It can be a part time interest or full time occupation.
Your success, depends largely on being able to obtain useful and timely information, whether you do all the research yourself or use the services of an agent or locator.
When starting out begin by concentrating on one area or region, and find as much information and examples as you can. It’s best to have an idea of the type of property that you are looking for – residential, commercial, retail.
Many investors buy property with the intention of adding value. Real estate development is the improvement of property as part of a real estate investment strategy. Property development has to be professional, start small with something you can handle; estimating renovation costs usually comes with experience. Before starting on this route if you are not a professional – take advice.
Any investment may go up or down but real estate has historically been a good investment, if bought at the right time! Buying a property to collect income in the form of rent is usually a good investment. Buying a piece of land which does not have planning permission, but you are told has future potential, is speculation.
Compared to other investments real estate has limited liquidity (the ability to convert an asset to cash quickly), a large financial commitment is required (although capital may be gained through mortgage leverage) and it is highly cash flow dependent.
The primary cause of investment failure, is that the investor goes into negative cash flow for a longer period of time than is sustainable.
Investors rarely pay the entire amount of the purchase price of a property in cash. Usually, a large portion of the purchase price will be financed using some sort of financial instrument such as a mortgage loan collateralized by the property itself. The amount of the purchase price financed by debt is referred to as leverage. The amount financed by the investor’s own capital, through cash or other asset transfers, is referred to as equity.
You will need to evaluate a property as to its market value, potential future value or as a landlord its rental prospects. In all areas of real estate investing the money that you make will depend to a large extent on the initial deal. Study your market.
If buying a property for rental, either single property or multiple units consider the “Price-to-earnings” ratio (P/E ratio) for an indication of the true value. To assess your earnings i.e. rents, you will need to study local rents for comparable units or homes in the area in which you intend to buy.
Having located a property and completed due diligence (investigation and verification of the condition and state of the property) you will negotiate a sale price and sale terms with the seller. Most investors employ real estate agents, surveyors and attorneys to assist in actually purchasing a property.
Property investment is not a means to “Get rich quick” but many have used skillful leverage and astute buying to make fortunes.
Real Estate Investment - How to Make Money Investing in Property
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