Real estate investment involves a large sum of money that is tied up to assets / properties to ensure a future stream of income. Such investment is always capital intensive and cash flow dependent. In simpler terms, real estate investment is based on an industry that uses more capital than labor and requires ready money or cash against all transactions.
Why is Investment in Real Estate Preferred?
Unlike stocks, real estate investment does not involve any speculation. The quantum of gains depends on knowledge about the location and market expertise. Strong research lays a healthy foundation for such investment. Hence, it is preferred by small investors as well as big ones.
For beginners, it is important to touch base with some of the underlying concepts of real estate.
The income / cash flows generated by real estate depend on the following:
- Net Operating Income (NOI): This is the sum of all the earning of a property minus the expenses such as maintenance, fees and taxes.
- Tax Benefits: Real estate investment can lead to reduction in taxes on other sources of income depending on real estate depreciation, carried over losses, etc.
- Equity: When an investor’s debt payments dedicated to the principal amount accrue over a period of time, his equity builds up. This implies a positive flow of cash.
- Appreciation: This is the most natural way of increase in returns from real estate investment. It is the rise in the market value of a property / asset over a period of time. This value is realized once the property is sold off.
Seasoned real estate advisors like Jeff Adams consider this arena as a goldmine of opportunity. However, one needs to tread with caution. The right research, advice and support is needed when venturing into real estate investment. When done correctly, real estate can be one of the safest wealth-creating mediums of all.
Let’s take a look at some tips that can come in handy for investors.
- Draw a plan: Real estate is a business and like every other business, it needs to be chalked out keeping in mind all the details. Try and set long term objectives (e.g. for a period of 10 years) and then work towards achieving it.
- Check your credit worthiness: Make sure you have the necessary cash flow or credit when financing a real estate property. Your credit report needs to be clean. You must try and pay off the outstanding loans to build your credibility.
- Get a good broker: A good real estate broker or agent can be useful in locating great deals. Consult the reliable ones; they can help you handle your cash transactions as well.
- Expand your horizon: Do not limit your search for good properties to your neighborhood. Sometimes, good properties lie at a distance. Broaden your search.
- Consider multiple sources: Browse websites, check out local newspapers and consult with successful investors and your chances of finding a good property will increase. Market listings are not the only source of locating available properties.
- Read up: Enhance your know-how about the market scenario and investment practices. Read more about real estate investment opportunities that prove to be fruitful for others. Build a circle that has similar investment interests. You can gain a lot from someone’s experience. It can be useful to read up material from gurus like Jeff Adams. Adams has been one of the chief innovators in this field and gives out some of the most beneficial tips.
- Look for decent returns: There is a golden rule about real estate investment – get a property that gives you at least 1% per month of the price.
Conclusively, be patient. Real estate investment has a steady growth. Do not expect hefty rewards overnight and you could be on your way to becoming a successful investor.
