Blog

What Is Real Estate Investing?

Real estate investing is using land or the buildings on it to make money. There are several ways to approach it including residential or commercial properties. 

To give you a full picture of real estate investing we’re going to answer these questions:

• What are the real estate investment types?
• How can I make money in real estate?
• How do I get started?

What Are the Types of Real Estate Investments?

There are four basic types of real estate investments: Residential, Commercial, Industrial, and Land.

Residential Real Estate

Residential real estate is what most people are familiar with. It’s where you invest in a residence. Purchasing a single or multifamily home, and renting it out is the most common form of residential real estate investing.

Commercial Real Estate

Commercial Real Estate is businesses or apartments with more than four units. If you want to invest in a restaurant, for instance, that would be considered commercial real estate. It’s easier to get into residential real estate as there are more tax regulations and city codes to worry about in commercial real estate.

Industrial Real Estate 

Industrial Real Estate is like commercial real estate on steroids. It’s where you invest in power plants, warehouses, or any large scale factory. If you’re a beginning investor, this probably isn’t the path to go down as the purchase price is typically extraordinarily high, and it’s a lot more complicated than either residential or commercial real estate.

Land Real Estate 

Investing in land is one of the easiest ways to get into real estate investing. Land real estate is where you purchase undeveloped land and either rent it out or hold on to it and wait for it to appreciate.

How Do You Make Money in Real Estate Investing?

So now that we’re here, how does investing in real estate make you money? There are three main ways to make money in real estate.

• Collecting Rent
• Selling it for more than you bought it (also called appreciation)
• Collecting interest from loans

Collecting Rent

The most common way to earn money through real estate is by collecting rent. You own property, and someone pays you money to borrow it. Pretty standard. For this to be a good investment, you’d need to rent it out for more than your mortgage payment plus any needed repairs. A good rule  is to buy a property that you can earn around 4% of the purchase price through rent yearly.

Flippers vs. Buy and Hold

Another common way people make money in real estate is by looking for deals and turning around and selling those deals for a profit. If you’re explicitly buying so that you can turn around and make a quick profit it’s called being a flipper. Flippers are looking to buy it, fix it up, and sell it as quickly as possible. It’s a pretty hands-on way to make money in real estate,
Some people aren’t interested in flipping houses and instead buy and hold. They’re banking on the housing market going up, which would allow them to sell for a profit down the road. While this is a common tactic, it’s more like speculation and less like straight real estate investing. It also usually takes a lot of time for the housing market to increase enough to be worth your time.

Collect Interest on Loans

A third way to make money through real estate investing is by earning interest on loans. In this situation, you invest your money, and a real estate developer takes care of the nuts and bolts of the operation. You typically don’t earn as high of a return doing this as you would by being more hands-on, but it’s a lot less time-consuming.
For instance, let’s say a real estate developer wants to purchase a property for $300,000. In this case, you’d loan them some or all of the $300,000 they need.
They’d pay you back a certain amount each month with interest. It’s like you’re the bank lending them money.

How to Get Started Real Estate Investing

Now we know the types of real estate investments and the most common ways people make money. It’s time to figure out which route is best for you.

Do You Want to Be an Active or Passive Investor?

The first step is figuring out how hands-on you want to be. Active investors take an active role in their investment. Passive investors let someone else worry about the details. Do you want to be involved in the day to day aspects of your investment, or do you want to supply the money and forget about it? It’s not just if you want to be active, but how active you want to be.

Active Investing Earns Higher Returns

Being an active real estate investor means you’re hands-on with your real estate investment.
You might be the one physically putting new tile in a house you’re trying to flip, or you might just be setting up the contractors to do the work. Either way, you’re taking time out of your day to make sure the job gets done.
An active real estate investor might also do the legwork of getting renters into their apartment or scheduling needed repairs.
The more hands-on you are, the higher your returns are likely to be. The more active you are, the more time it will take out of your day.

Passive Investing Involves Less Time and Stress

Being a passive real estate investor means you hire out much of the day to day work. This can be as simple as hiring a property management company to take care of getting renters and scheduling repairs for you.
As a passive real estate investor, you give up some of your potential earnings via management fees in exchange for your time and sanity.
People who are already very busy, or don’t want to worry about all the responsibilities of an active real estate investor, might like the freedom that passive real estate brings.
The first step to jumping into real estate is figuring out where on the active/passive continuum you see yourself as a real estate investor.

How Risk Tolerant Are You?

Speaking of sinking the whole ship, how risk-tolerant do you want to be? The more risk you take on, the higher your potential rewards.
Are you looking for a safe path to gain a steady rate of return or would you rather risk a larger loss in hopes of a substantial gain?

There are obvious risks with each type of real estate investment. You might buy a duplex only to find nobody wants to rent it from you. You might buy a piece of land in hopes the value goes up, but instead, it goes down.
Investors who lend money to real estate developers take the risk that the developer will lose their money or the market will turn, and nobody will buy the finished product.
When deciding to become a real estate investor, it’s critical to do your due diligence to be sure you’re limiting risk as much as possible. Each type of real estate investor takes on a different amount.

Working with a Real Estate Agent

Having a real estate agent you can trust is essential to helping you feel comfortable investing your money. Whether you want a rental property to generate cash flow, or simply want to buy and hold, a competent real estate agent can make all the difference. They can save you hundreds of hours by immediately narrowing down your search and fit the exact criteria you’re looking for. They also have the experience to know the difference between a good investment and a bad one. It’s one way to substantially lower your risk of ending up in a bad deal.

Call me for any advice you may need!

What Are The Factors That Affect The Value Of A Property?

Whether you are selling or buying an investment property or home, you need to consider what the property is really worth. So what are the factors that effect the property value?

1. Location

   The location of your property is one of the most important factors that affect real estate values. Is it close to restaurants, schools, shops, public transportation? Is it in a tourist destination? Is it close to the city center? The more popular and accessible an investment location is, the more valuable the property will be.

2. Home Size and Usable Space

   The market value of a real estate property is usually mentioned in terms of price per square meter– the total sales price divided by the property’s square meter. A property’s value is determined by the usable space. Garages, unfinished basements, and attics are usually not included in usable square meter. It is spaces such as bathrooms and bedrooms that can significantly increase the home value.

3. Age and Condition

   Age is another factor that plays a major role in determining property value. Usually, the newer the property, the more buyers would be willing to pay for it since it does not require any major real estate renovation or repairs. Besides age, property buyers also consider the condition of the structure. People would rather buy a 15-year old house that is well maintained than a newer one that needs major renovation.

4. Upgrades and Updates

   Upgrades, updates, and home renovations can significantly increase the value of your property, especially older properties that might have outdated features. Kitchen and bathroom renovations are some of the improvements that could have the biggest effect on the home’s value.

5. Supply and Demand 

   The push and pull of supply and demand has a major influence on the value of property. If there is a high demand but fixed supply, the price of properties will rise as more people attempt to buy. Supply can be increased by splitting large existing structures into several smaller units or building entirely new properties. When supply exceeds demand, prices will then start going down.

6. Real Estate Comps

   If you want to know the value of a property, check the sale prices of comparable properties (real estate comps) that were sold recently in the area. The properties could be comparable in terms of:

• Type of home (Apartments-Villas-Duplexes)
• Year built
• Square Meter
• Number of bathrooms and bedrooms
• Location (near a mall, beach or busy street for example)

7. Planning/Building Regulations

   Constructing a property today requires building regulations (which include the technical aspects of the construction process) and planning permission (which includes the design, shape, and size of the property). Failure to adhere to these regulations could result in a property being demolished. The amount of planning permission and building regulations required can, therefore, have an impact on the value of the property.

8. Interest Rates

   The level of interest rates is one of the major factors that affect property value. If the Reserve Bank decides to increase the interest on loans, lenders will follow suit. This will mean that borrowers will have to pay a higher monthly mortgage repayment. Expensive mortgages mean that properties will be sold at a higher price. On the other hand, a reduction in interest rates means that property will be more affordable.

9. Renovation Potential

   Most real estate investors and home buyers are interested in the renovation potential of a property. This could be the potential to increase the floor space, add an extra bathroom or extra bedroom, add an outdoor patio or add a pool. If there is an allowance for a buyer to personalize or improve a property, then the value of the property will be higher.

10. Economic Factors 

    The economic conditions of an area will have an effect on people’s ability to sell or buy an investment property. When the economy is booming, there will be more jobs and people will earn more money. As the buying power of people increases, they are more likely to invest in a new home or second home. The increase in demand will eventually result in higher property prices. On the other hand, if unemployment increases and wages drop, less people will be able to afford a home. Subsequently, the prices of property will also drop. It is therefore very important to keep up with the prevailing conditions of an area before setting the price for a property.

Conclusion

It is important to know what a property is worth before buying or selling. This is why you should work with professional real estate agents who have some experience with property valuation and appraisal in the local area.

Call me for any advice you may need!

Whether to rent or to buy is a major decision. It doesn’t just affect how much money you have left at the end of the month, it also affects your lifestyle and the size of the savings you accumulate over the years. Every day, people buy homes when financially they’d be better off renting because it’s important to them to have a place to put down roots and because they see owning a property is an investment that can grow. Similarly, people rent all the time for the flexibility and minimal responsibility it offers.
Owning isn’t universally better than renting, nor is renting always simpler than owning. Consider the pros and cons of each to figure out whether renting or owning is best for you.

Renting

Renting means you can move without penalty each time your lease ends or before if you give a notice for the owner, but it also means you could have to move suddenly if your landlord decides to sell the property.
The biggest myth about renting is that you’re “throwing away money” every month. Not so. First of all, you need a place to live, and that always costs money, in one way or another. Second, while it’s true that you aren’t building equity with monthly rent payments, you also aren’t building equity with much of the money you’ll put into owning a house.
When you rent, you know exactly how much you’re going to spend on housing each month. When you own, you might pay nothing more than your mortgage and regular bills one month, and an additional $12,000 on a new roof the next.
As a renter, though, you do face unpredictable rent increases each time your lease is up for renewal. While if you get a fixed-rate mortgage, your monthly house payments will never increase (though property taxes and insurance premiums probably will).
While home ownership is often touted as a way to build wealth, your home can lose value. The acceptable neighborhood you moved in could decline. You might buy a house for $200,000 tomorrow and in 30 years find that it’s still worth $200,000, meaning you’ve lost money after inflation.
Do you like having your evenings and weekends to use as you please? Do you work long hours or travel frequently? If so, then the time commitment that comes with home ownership might be more than you want to take on. There are always projects around a house that you will need or want to take care of.
If you rent, your landlord will take care of all the major repairs and maintenance, though of course they may not be done as quickly or as well as you would like.

Buying

Home ownership brings intangible benefits such as a sense of stability, belonging to a community, and pride of ownership. Real estate is the original illiquid asset. You might not be able to sell when you want if the housing market is down. Even if it’s up, there are significant transaction costs when you sell. Changing your mind about where you want to live is far more expensive when you own.
The overall cost of home ownership tends to be higher than the overall cost of renting, even if the monthly mortgage payment is similar to (or lower than) the monthly cost to rent.
Here are some expenses you’ll be spending money on as a homeowner that you don’t have to pay as a renter:

• Property taxes
• Water and sewer service
• Major property and common areas Repairs and maintenance
• Homeowners insurance

Perhaps the biggest throw-away expense is mortgage interest, which can make up nearly all of your monthly payments in the early years of a long-term mortgage. Take this typical scenario: You borrow $100,000 at 4% for 30 years. Your first monthly payment will be $477.42, of which $333.33 is interest, and $144.08 is principle. It will be about 13 years before more of your monthly payment goes toward principal than toward interest, and in total, you’ll lose $71,869.51 in interest.
Even renovation projects don’t often increase the value of your home by more than what you spend on them.
Once you add up all these costs, you might find that you’re better off renting and investing the money you would have put into a home into a retirement account.

Conclusion

Which option is best for you isn’t just about money, it’s also about comfort and your vision for your life. Ignore people who tell you that owning always makes more sense in the long run, that renting is throwing away money or that it makes more sense to buy if your monthly mortgage payment would be the same or less than your monthly rent payment. Housing markets and life circumstances are too varied to make blanket statements like these.
Still, despite the added expense and extra chores associated with owning a home, many people chose it over renting. It provides a more permanent place to raise children and often it offers the only way to have, or create, the sort of residence people want. Ultimately, the decision to rent or to own is not just financial, it’s also emotional.

Call me for any advice you may need!

What Is a Buyer’s Market?

What it means for buyers: 

What Is a Seller’s Market?

Strategies for Buying in a Seller’s Market

Strategies for Selling in a Buyer’s Market