Real estate investing can reap huge profits for a shrewd and careful investor. The data collected by the U.S. Census Bureau indicates that the prices of real estate have been steadily increasing since 1940, although briefly stagnating in between. The real estate prices have been galloping much faster than the rate of inflation. According to Jeff Adams, a savvy investment guru, the investment in real estate is much more lucrative than any other form of investment.
Realistic Valuation
Proper valuation of the property is the first step in any real estate investment decision. Price of the neighbourhood property is just an indication of the prevailing prices. But the price-to-earning (P/E) ratio gives the real intrinsic value of the property. Earning in this case is the prospect of getting net rental income out of it. As a rule of thumb this earning should be 1% above the average yield from the Treasury bonds. The value of the house or property is the inverse of the P/E ratio.
The comparative rental data for the properties in your area can be obtained from the websites of big real estate agents or from the newspaper supplements on real estate. The high P/E ratio indicates that you got a good deal meaning it is an “up” market and the low P/E ratio means the opposite. Just like the stock market the P/E ratios for real estate properties too vacillate. You have to be a good guesser to know when the P/E ratio of your property hits too high. That is the right time to sell it.
However, it is difficult for an ordinary investor to determine whether the real estate market has hit the rock bottom or it has become blown into a bubble about burst. Real estate market is not liquid like stock market where you can keep trailing stop losses on stock prices on a free fall.
Rental Income out of Real Estate Holdings
The prospect of rental income is one of chief attractions of investing in real estate. The property earns enough income to cover he mortgage payments and other costs of holding it till the right time to sell it. The property becomes self-owned after the mortgage is fully paid up, while steadily appreciating in its value. However, maintaining the real estate property requires one to devote considerable time effort. Renting out a property too has its drawbacks, like the inability of finding suitable tenants or attending to their complaints.
Some Real Estate Investment Groups buy land, develop large housing complexes and manage them collectively for rental income or for value appreciation on behalf of individual investors. This relieves the individual investors the headache of being direct landlords.
RETTs
A Real Estate Investment Trust (RETT) is another innovative concept. The underlying asset of RETT constitutes a trust incorporated with the objective of utilizing the investors’ monetary resources to buy and operate real estate properties. RETT units are intangible instruments publicly traded at major exchanges in electronic form just like any other stock.
Housing Loans
Funding an investment needs to be taken into account well in advance lest a golden opportunity slips out of hand at the opportune time. The housing industry being a priority sector many banks and lending institutions are ready to finance real estate investment against the mortgage of the property in question just with 10% to 20% down payment of the cost of the property.
These mortgage loans come with various interest structures built into them, such as fixed rate, floating rate or a combination of both. In the current scenario when the interest rates are already the lowest, it is advisable to go for fixed rate mortgages.
The interest rates move in tandem with the business cycles which ultimately reflect the state of a country’s economy.
Auctions of Foreclosed Property
When a buyer is unable to make the mortgage payments, the lending institution exercises its legal right to take over the property, known as foreclosure, trying to recover the balance of the loan. The foreclosed properties are eventually sold at auctions by professional auctioneers.
The auctions present a great opportunity for bargain hunters to lap up some good foreclosed properties going cheap. The current trend of online auctions makes it convenient for a property buyer to participate in the bidding process on the computer without moving anywhere. The procedures are swift, transparent and cost-effective. The lists of foreclosed properties available for auction can be accessed from the auction websites, the popular ones being auction.com and RealtyBid.com.
Although, the websites give complete details, along with pictures, of the properties put for auction sale, it would be prudent to conduct some on-site investigation to determine the actual condition of the property. Some desperate sellers might not care or might be lacking resources for the maintenance and upkeep of their properties. It is also necessary to ensure that those properties are not saddled with encumbrances like liens, tax liabilities etc.
All in all, the modern technology offers enviable opportunities for enterprising and knowledgeable investors to make good money by investing in the lucrative market of real estate.
