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Real Estate Investing Techniques
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How to Bottom Fish in Florida Real Estate Market
After many years of spectacular growth, Florida property, like the rest of America, has seen a recent decline. High interest rates have taken their toll but less well recognised, 2005's above average hurricane season has been a major factor in the Florida story. Obtaining property insurance in Florida is difficult. Most insurance companies won't take the risk, and so home owners have to obtain cov... Read real estate article
Real Estate Investing - Do Adequate Research
These days, a whole lot of people in America are investing money in real estate. Unless all these people have very poor judgment, there must be a good reason for it. Perhaps it's because real estate can climb in value very quickly and return a good profit. I can not imagine any other reason.
When so much money is at stake, you must be certain that you know exactly what you are doing, si... Read real estate article
Real Estate Investing Techniques
It was in the early 1970s that financial institutions showed interest in investing in real estate. The initial institutional investors were involved in mortgage debt and core private real estate, but as the market evolved, investors have a wider choice than before. Advances in private and public equity real estate have made it even more convenient for institutional investors to invest in real estate. Initially they were more drawn to the core diversified investment strategies such as insurance companies investing pension funds in core real estate. This lured other financial institutions such as private institutions, foreign investors, commercial banks and other institutions such as savings and loan banks to invest heavily in real estate too. This sudden influx in capital crashed the real estate markets, causing desperate sales at under value prices resulting in heavy loss.
Investing Styles:
Institutional real estate investing styles are broadly classified as core, value-added and opportunistic. Core real estate investing is a low risk, low returns kind of property and is usually a long-term investment. More people prefer core style as it offers a high-income yield, is stable and offers an inflation hedge. Institutes prefer to invest in class A type of buildings with no leverages and as little capital requirement as possible. They seek metropolitan areas, as the degree of liquidity is high in such areas. The liquidity constraints are taken into consideration while institutional investors invest in office, apartment, retail or industrial sectors of real estate. They usually use a buy and hold strategy while investing in core real estate. These properties are acquired by the institutions and held under fiduciary management. The fund managers buy larger, newer buildings located in fast developing areas; the tenants are selected with care and offered long-term leases. This makes it a very attractive and high yielding investment for the investors. Office properties are however considered very volatile that also require a larger amount of capital while investing.
Industrial properties are investments that are more popular as they are less volatile and need lesser capital investment than office properties. Investors look for easy access to airports, ports, stations or interstate highway etc for easy movement of goods. Apartment are more responsive to changes and require less capital investment too as they are not capital intensive, have a high degree of liquidity, lower transaction costs and cash flow are its main attractions to institutional investors. Retail properties are highly capital-intensive; demographics play a very important part in selection of the property. Value added properties are less liquid than core properties and initial cash flow is usually negative. This refers to the rehabbing of properties. Opportunistic investment strategies refer to the practice of buying properties in distress sales and making a profit.
These are some of the institutional investing techniques. There are firms that offer services as well as products to help run a business efficiently.
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Foreclosure Investing
Last year was a record year for bankruptcies. Delinquent payments on mortgages, according to the Mortgage Bankers Association of America, reveal a coming wave of foreclosures on the horizon.
There's opportunity now for investors to step in and benefit from these properties that are about to hit the market. However, despite all the hyperbole, investors can lose money in real estate - a lot of money. If you have some cash itching a hole in your bank account and you're looking for positive cash flow and possible high returns on investment, be sure to avoid these pitfalls in the foreclosure investor field.
Paying too much for a foreclosure. Many VA and HUD foreclosure buyers have found themselves getting caught up in the excitement of auctioning up on properties and watch, without even knowing it, their supposed cash cow die right in front of them. I have personaly seen happy investors bidding on a property in Malibu Bay, Pembroke Pines,Florida up to $158,250. I met them the next day and asked them why they just overpaid for a property with a market value of $150,000-$152,000. By the way, next door was on the market for an asking price of $154,900. If you must have a 20 or 25 percent spread to make money on the purchase, then stop bidding when the price gets below that spread amount.
In simple terms, if you're bidding on a property with a $150,000 value and you intend to sell it for a 20 percent gain, then stop bidding when the price gets above $120,000. In a hot market, even foreclosures will sell at market price, but then the new owner must move in and most likely fix up a dilapidated property that has been neglected by the former owners. (Usually, when an owner is headed toward foreclosure, fixing the leaky roof or basement is the last thing on his mind, leaving it up to the 'bank' to fix instead.)
Getting a house without clear title. Since I'm not an attorney, I won't go deep into this point, but make sure you can get clear title to a property before you put your $10,000 earnest money deposit into the deal. Order a title search by an attorney to find out if you're going to have any problems taking title to the property. If you can't get title, you can't sell the property.
Negative or unprofitable cash flows. The whole idea behind buying a foreclosure is to buy low enough so that rent checks will cover the investor's mortgage payment, taxes, insurance and fees each month and then leave the investor some profit at the end of the month. Unless the property is in pristine condition and all the systems will last repair -free years, you're setting yourself up for financial hardship if an air conditioner breaks or the refrigerator has a compressor attack.
The monthly cash flow should include enough to finance any breakdowns or repairs while the tenant lives in the dwelling. Negative cash flows are not deductible expenses.
Not taking care of little problems before they become big problems.
Don't take the cheap way out on being a landlord. A house starts deteriorating from the day the builder completes its construction. Your new investment property is creating cash flow - take care of it. Keep it painted regularly, clean carpets and floors between tenants, fix broken windows, repair leaks promptly, replaced rotted wood, etc. If you let the property deteriorate until you can't rent it out any longer, you've waited too long to fix these items. In addition, to fix defects early on will save you money if you wait and the bill doubles or even triples.
Failing to educate yourself on tax benefits of owning investment properties. If you're going to invest in rental property, talk with professionals in the field who know how to maximize your financial benefits form this new form of investment. Accountants, attorneys and real estate practitioners are all worth their fees as they help you avoid pitfalls, increase your gain and keep you out of trouble.
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Real Estate Investing Techniques
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