Real Estate Investor Overview
Why you should Invest in Real Estate:
Rental Income % - This is the yield in percentage directly from rental income. It can be calculated as either gross or net.
Benefits of Inflation - Rents usually increase with inflation while mortgage remain the same. This increases cash flow without increasing the mortgage payment to own property. When inflation goes up, the pool of renters increases as purchasing becomes more expensive for the average consumer. More demand means higher rents.
Paying Down Loans - Amortization (or paying down loans) increases equity to buy more properties. Remember, tenants are paying down the loan.
Real Estate vs. Stock Market - Stocks and bonds are inflation sensitive. Dividends are subject to ups & downs based on the stock value. Real Estate, on the other hand, is a multi-facet investment which provides different ways for returns.
Appreciation - Rental properties normally appreciate in the value with inflation. Increased value facilitates reinvestment in higher value properties, or provide equity lines of credit to use for other investments. Is the neighborhood increasing in value, flat, or declining? Always buy when value is increasing.
Leveraging to Purchase - Leveraging while being careful to buy properties with high demand provides greater return by way of %. For example, using $100,000 for down payments to purchase three properties, instead of buying one for $100,000 cash, can greatly increase returns. However, never over leverage.
Property Improvements Increase equity - Many investors purchase properties at a reduced price because they lack certain features or are in need of improvements. They have calculated this in the end value of the property. This is known as ARV (Appraised Repaired Value).
TYPES of Investors:
FLIPPERS - Investors looking to make immediate return on investment. Short term goal.
BUY & HOLD - Investor looking at long term investment. Does not expect to see an immediate return. Planning for the future.
WHOLESALER - This investor goes into a contract with a home owner, then markets the property (normally in distress) and resells it to an investor, the profit coming from the difference between contracted price and sale price. Usually involves cash, lines of credit, or hard money loans.
Questions to ask yourself
What are your long/short term goals?
What type of return are you looking for?
Are you wanting to do a 1031 exchange?
Do you have a preference in location?
Are you open to making repairs? Full remodel?
How long do you want to keep the property?
How many properties do you want, and in how long?