Advantages of real estate investing

Advantages of real estate investing

Investing in real estate is as advantageous and as attractive as investing in the stock market. I would say it has three times more prospects of making money than any other business. But, But, But… since, it is equally guided by the market forces; you cannot undermine the constant risks involved in the real estate. Let me begin discussing with you the advantages of real estate investments. I found the advantages as most suited and really practical.

 
Advantages

Real Estate Investments are Less Risky

As compared to other investments, less of misadventure is involved in a real estate property. I will not get away from the fact that just like any investment you make; you have the risk of losing it. Real estate investments are traditionally considered a stable and rich gainer, provided if one takes it seriously and with full sagacity. The reasons for the real estate investments becoming less risky adventure primarily relate to various socio-economic factors, location, market behavior, the population density of an area; mortgage interest rate stability; good history of land appreciation, less of inflation and many more. As a rule of thumb, if you have a geographical area where there are plenty of resources available and low stable mortgage rates, you have good reason for investing in the real estate market of such a region. On the contrary, if you have the condo in a place, which is burgeoning under the high inflation, it is far-fetched to even think of investing in its real estate market.

No Need for Huge Starting Capital

A real estate property in Canada can be procured for an initial amount as low as ,000 to $ 15,000, and the remaining amount can be taken on holding the property as security. This is what you call High Ratio Financing.  If you don’t have the idea as to how it works, then let me explain you with the help of an example. Remember that saying… Examples are better than percepts!

Supposing, you buy a condo worth 0,000, then you have to just pay the initial capital amount say 10% of 0,000. The remaining amount (which is 90%) can be financed, against your condo. It means that in a High Ratio financing, the ratio between the debt (here in the example it is 90% Mortgage) and the equity (here in the example it is 10% down payment) is very high. It is also important to calculate high ratio mortgage insurance with the help of Canada Mortgage and Housing Corporation (CMHC). If needed, you can also purchase the condo on 100% mortgage price.  

Honing Investment Skills

A real estate investment, especially when you buy a condo for yourself, will be a pleasurable learning experience. It gives you the opportunity to learn and when I went ahead with my first real estate property, I was totally a dump man. Ask me now, and I can tell you everything, from A to Z. Necessity is the mother of all inventions. I had the necessity to buy the property and so I tried with it, and I was successful. I acquired all the knowledge and skills through experience of selling and purchasing the residential property. Thanks to my job. It gave me the experience to become an investor.

 
Not a time taking Adventure

Real estate investment will not take out all your energies, until you are prepared and foresighted to take the adventure in full swing. You can save hell lot of time, if you are vigilant enough to know the techniques of making a judicious investment in the right time and when there are good market conditions prevailing at that point of time.

You should be prepared to time yourself. Take some time out, and do market research. Initiate small adventures that involve negotiating real estate deals, buying a property, managing it and then selling it off. Calculate the time invested in your real estate negotiation. If the time was less than the optimum time, you have done it right. And if you end up investing more time, then you need to work it out again, and make some real correction for consummating next deals. You have various ways and methodologies, called the Real Estate Strategies that can make it happen for you in the right manner.

Leverage is the Right Way

The concept of leverage in real estate is not a new one. It implies investing a part of your money and borrowing the rest from other sources, like banks, investment companies, finance companies, or other people’s money (OPM). There have been many instances where people have become rich by practically applying OPM Leverage Principal. As I had discussed under the sub head – No Need for Huge Starting Capital, the high ratio financing scheme gives an opportunity of no risk to the lenders, as the property becomes the security. Moreover, in case the lender is interested in selling the property, the net proceeds resulting from the sale of the property should comfortably cover the mortgage amount.

Now consider a situation, where the lender leverages the property at too high ratio debt say 98% or even more, and all of the sudden the market shows a down turn, then both the investor as well as the lender. Hence, greater is the mortgage debt, more is the lender’s risk, and it is therefore necessary that lender pays higher interest rates. The only way out to ease the risk from lender’s head is to get the mortgage insured. Two companies authorized to insure your high-ratio mortgage debts are CMHC (www.cmhc-schl.gc.ca), and GE mortgage Insurance Canada (www.gemortgage.ca).

Let me explain you with the help of an example… supposing, you are buying a real estate property worth $ 200,000 at three mortgages, with the first one of  0,000, the second of  ,000 and the third one of  ,000. Possible percentage of interest rates charged can be 3%, 5% and 7%.  The last mortgage amount of  ,000 will be accounted, as riskiest; as it would relatively be the last mortgage that you will pay when you finally make a selling deal.

On the contrary, if the first mortgage representing almost 90% of your property price is insured against getting default or as high ratio mortgage, then in the above example, the basic interest rate would be 3%.

Let me explain you the leveraging concept by taking another example.

 Supposing, you are buying a real estate property worth 0,000, and made down payment of 10%, equitable to ,000, while financed the rest amount of ,80,000. Over the year’s time, the value of your property appreciates by 10%. In this case, what would be the total return that you’d incur on your down payment of ,000? It would be 200%. Yes 200%. Putting in simpler words, the down payment of  ,000 made by you has an appreciation of 10% over it, i.e. (10% increase of original home price of $ 200,000), 200% return on your down payment investment of ,000.

On the contrary if you invest all the money in buying the property of 0,000, and in wake of appreciation of 10% over the year (,0000 would then be accrued to as 20%.

Synonymous with leveraging is pyramiding, where you borrow on the appreciated value of your existing property. Pyramiding applies the principal of leverage that enables you to purchase even more properties. This appreciated value over the real estate property in some selected areas results in accumulation of rich financial virtues.
 
Real Estate Appreciation

An appreciation is an average increase in the property value over original capital investment, taking place over a period. There are some neglected real estate properties that have an appreciation below the average mark, whereas, some of the properties located in maintained geographical areas, showing high demand, have an above average appreciation. In such centrally located and high demand areas, the average appreciation can reach up to 25% in a year. I will discuss appreciation in the chapter on real estate cycles. For now, for general understanding, appreciation is what goes up.

You Make Your Equity

As you gradually pay your mortgage debts, you are creating your equity. In other words, you would be reaching to original house price on which you have no debt. Your equity is absolutely free of percentage increase in appreciation.  From the investor’s perspective, in real estate market, equity is the amount that is free of debt and it is the amount that an investor holds. When you sale your property, then the net money you get, after paying all the commissions and closing costs, becomes your equity. Lenders don’t want to take risk by allowing a loan on over 90% of equity. Therefore, in this manner, the lenders take the safety measures in wake of their loan being defaulted.

The Federal Bankruptcy act says that all the first mortgages of over 75% of the appraised or purchase value must be covered under high-ratio insurance schemes. However, there are certain conditions, wherein, CMHC offers the purchasers of real estate property qualifying the insurance, a mortgage of up to 100% of purchase price over your principal house value. In the wake of an event where borrowers want more money from the lenders, they would ideally settle for second and the third mortgages.

Low Inflation

Inflation is the rise in the prices of the products, commodities and services, or putting it another way, it is the decrease in your capacity to buy or hire the services. Supposing, a commodity was worth a decade back, will now cost $ 100 as the result of inflation. For people who have fixed salaries feel the real brunt of the dollar, as the inflation rises. In Canada, the inflation rate varies and it varies every year. There was a time when Canada had a double-digit, but it was controlled to single digit, after the regulation of policy.

If we analyze closely, the land appreciation value for the residential real estate is 4% to 5% higher than inflation rate. Therefore, when you invest in real estate, then you are paying mortgage debts in high dollar value. Now as you are getting more, salary to pay less amount than the amount that you had paid in the original mortgage.

Tax Exemptions

You get various tax exemptions on your principal and investment income property. The tax exemptions available in real estate property investment are more than available in any other investment.  In other investments, you lose terribly on the investments in your bank in the form of inflation and high taxes therein, but in real estate; you don’t actually have such hindrances.

Various tax exemptions available are:

•The interest receivable from your bank account, term deposit or guaranteed Investment Certificate (GIC) is completely taxable as income. A little math here will do the magic work for you. Supposing, if you get an interest of 8% on the deposit, and the on going inflation rate is 5%, the Real Return Rate will come out to be settled at 2%.
•You get completely tax-free capital gain on principal amount of your residential real estate property.
•You have the opportunity to ward off principal amount of your residential real estate property against the home expenses incurred by you.
•You can easily ward off the property depreciation against your income.
•You can cut the expenses incurred in real estate property investment through your income
•Tax rate reduced to approx. 50% of the capital gain.
•And many more

Net Positive and High Income is Generated

If taken in right direction and played seriously, a real estate investment can be your virtue making endeavor now and in times to come. You will not only be having additional assets building in your favor, but also with positive cash flow, your real estate property value will increase automatically.

High Return on Investments (ROIs)

Real estate investment gives you potentially high ROIs before and after the taxes levied on your income. In fact, investing in real estate gives you high ROIs after the taxes.

Demand for the Real Estate Increases

As a natural instance, when the population of a region increases, the total usable land decreases, and this provides the impetus for high real estate prices. There are many communities that can or cannot have growth and development regulations, thereby, resulting in limited land available for use. Therefore, the real estate prices of the area shoot up. Remember housing is the necessity of an individual and therefore it is much in demand than any other single commodity taken. Furthermore, there are people who purchase additional houses for their recreation, recluse or as a past time. This in turn increases the demand for land.

Tips For Military Home Buyers Who Are Buying San Diego Real Estate

San Diego County is home to one of the largest concentrations of military bases in the United States. In fact, the San Diego area contains 12 major Marine Corps and Navy bases and facilities. If you’re in the military and moving to San Diego, one of your biggest decisions is whether to buy a property, live on base housing (if this option is available to you), or rent a home or apartment. If you choose to buy a property, there are many issues to consider before taking this step.

BUY OR RENT?

The decision to buy or rent is more complicated for military personnel because you may be assigned to San Diego only for a limited period of time. If you plan to purchase while in San Diego and then sell when you transfer, the condition of the real estate market at the time you sell will make this either an easy or difficult process. In a seller’s market (when demand exceeds supply), properties tend to sell quickly and at or above asking price. In a buyer’s market (when supply exceeds demand), properties usually take much longer to sell and may sell below asking price. Individuals in the military should consider this issue in determining whether to buy or rent real estate in the San Diego area.

For those who choose to buy, the major other consideration is the likely appreciation rate of your property during your tenure in San Diego. If you plan to sell your property before you depart to your next assignment, you should remember that there are expenses (e.g. realtor fees, taxes, etc.) associated with selling your house, and any price appreciation you realize by owing the property for a few years, may or may not be offset by these fees.

Some individuals choose to keep their property even after they transfer to a new assignment outside of San Diego. In these cases, you can rent out the property, leave it empty, or find another acceptable use of the dwelling. If you choose to hire a Property Manager to oversee the renting and maintenance of your property, keep in mind that the fess for this service will cut into any monthly profit you realize on the property.

GETTING A HOME LOAN?

If you decide to purchase a property, obtaining a home loan is one of the tasks you must undertake. Many active-day members, retirees and other service veterans are eligible for special loan programs guaranteed by the Veterans Administration (VA).

To be eligible for a VA guaranteed loan, you must have served on activity duty and have a discharge status of other than dishonorable after a minimum of 90 days of service during wartime, or a minimum of 181 continuous days during peacetime. There is a minimum 2-year service requirement for veterans who enlisted after September 7, 1980. The 2-year requirement also applies to Officers who began service after October 16, 1981. There is a minimum 6-year service requirement for National Guard members and Reservists, and surviving spouses are also eligible under some conditions. There are other special conditions in which a person may be eligible, so contact your local VA office to get more information.

WHAT IS VA GUARANTEED LOAN?

The VA loan is a federal guarantee of a maximum of 25% of a home loan amount but not to exceed 4,250. This formula allows eligible members to obtain a maximum loan amount of 7,000 (as of 2006). However, service members must meet other eligibility requirements. Individuals borrowing using this type of loan must intend to be occupants of the purchased property.

Private lenders are the source of funds for VA guaranteed loans. The guarantee provides these private lenders assurance that the federal government will reimburse the lender up to the maximum allowable amount if the borrower fails to repay the loan. Because of this guarantee, lenders are more favorable to offering loans without a requirement for a down payment.

VA CERTIFICATE OF ELIGIBILITY

Individuals desiring a VA guaranteed loan must first obtain a Certificate of Eligibility from the Veterans Administration (VA Form 26-1880). Contact your local VA office to obtain this form by calling 1-888-244-6711. You will need a copy of your military discharge document (DD-214) to submit with your application. Once you have the Eligibility Certificate, you can then select a lender or mortgage broker to work with on getting the loan.

CLOSING COSTS

In addition to the purchase price of your property, there are closing costs that must be paid to process your home loan. These closing costs are fees that are charged by different service providers to help complete the loan process. For example, your lender will require an appraisal of the property to make sure that its value is at or above your purchase price. Other charges commonly included in closing costs are: recording fees, credit report fee, prorated taxes and assessments, hazard insurance, flood insurance (if required), survey, title examination, title insurance, postage and shipping fees, and the VA Funding fee.

WHAT IS THE VA FUNDING FEE?

The VA charges a fee to individuals utilizing the VA guaranteed loan. This fee is a percentage of the loan amount and is linked to the size of your down payment on the home you plan to purchase.

For active-duty personnel or veterans who put no money down, the funding fee is 2.15% of the loan amount. This rate increases to 2.4% for National Guard/Reserve.

For active duty personnel or veterans who put a down payment greater than zero but less than 10% of the loan amount, the fee is 1.5% of the loan. This rate increases to 1.75% for National Guard/Reserve.

For active duty personnel or veterans who put a down payment of 10% or more of the loan amount, the fee is 1.25% of the loan. This rate increases to 1. 5% for National Guard/Reserve.

The rates listed above are for first time users of the VA loan guarantee program. Individuals who have used the VA guaranteed loan program before pay higher rates than first time users. The rates above are subject to change. In some limited cases, individuals are exempt from paying the funding fee. You should contact your local VA center for current information.

CHOOSING A VA LOAN VS. A CONVENTIONAL LOAN

You must carefully evaluate the terms of the VA guaranteed loan vs. the terms of a conventional loan. One advantage of a VA guaranteed loan is that many lenders will not require you to put a down payment on the purchase of the property, assuming you meet their other lending criteria (e.g. credit scores, sufficient income, adequate debt to income ratio, etc.). There are also many zero down payment conventional loan programs. In some cases, the VA guaranteed loan will offer a lower interest rate and better terms, and in other cases, you can obtain a better deal through conventional financing. A good loan officer can help you evaluate the advantages of either loan, given your particular situation.

FINDING THE RIGHT HOME

If you are familiar with the San Diego area, then you probably already know where you want to live. If you are less familiar with the communities in San Diego, your Realtor can serve as an excellent resource to answer your questions. There are many steps to take during the home search process, which include:

1. Work with your loan officer to identify how much you can afford.
2. Determine what type of property you want to buy (single-family home, townhouse, condominium, other). Your Realtor can advise you about the differences between these types of properties.
3. Determine how many bedrooms, bathrooms, square footage, etc. you need.
4. Determine what areas of San Diego you would consider living in.
5. Calculate the drive time (with and without traffic) to your job.
6. Identify the quality of schools in the neighborhoods that you are considering.
7. Locate the crime statistics for the neighborhood that you are considering.
8. Identify the location of local community resources such as libraries, shopping centers, athletic centers, etc.
9. Ask your Realtor to advise you about the resale potential of the home you are considering.

Although there are many other factors to consider, the above is a good starting point. Your Realtor should be able help you get answers to the questions above as well as provide you many other resources. Keep in mind that most Realtor’s who assist homebuyers and paid by the home seller, but make sure to ask your Realtor about this.

HOW MUCH SHOUD I PAY FOR A HOUSE?

Your Realtor should be an excellent source of information to help you understand a fair offer price. The Realtor should provide you information about what other similar properties in the same community have sold for recently, current pricing trends for the community, as well provide you a recommendation based on their experience in the local market.

DO I NEED A HOME INSPECTION?

There are many other issues besides the offer price to consider when making an offer. For example, many buyers find it advantageous to get an inspection of the property by a qualified inspector. The inspection typically covers the major systems of a property. Check out the National Association of Home Inspectors web site for more information about what is covered in a typical home inspection. Getting a home inspection is generally a good idea.

HOW LONG WILL THIS TAKE?

If you want to use the VA guarantee, then make sure you have obtained the Certificate of Eligibility far in advance of your relocation to San Diego. Whether or not you are using the VA loan program, be sure to obtain a loan pre-approval (sometimes called loan prequalification) from a lender or mortgage broker. This lets home sellers know that you are a serious buyer and are ready to act quickly if needed.

Prior to moving to San Diego, get a sense of the local real estate market. Your Realtor can set up an automatic email notification system that will send you descriptions and pictures of properties that meet your criteria. Doing this type of research should save you a lot of time when you arrive.

Once you have your loan pre-approval, the next step is to locate a property that meets your needs. Your Realtor should show you a variety of available properties that meet your criteria. Once you find a house you an interested in, your Realtor will prepare the purchase offer documents, and guide you through the loan and closing process.

In summary, it’s simply a process of getting a loan, finding a house that you like, making an offer that is accepted, and going through the closing process, which can occur in less than 30 days.

CONTACT A SAN DIEGO REALTOR

If you are moving to San Diego, contact a Real Estate agent who is familiar with VA guaranteed loans and has experience working with military buyers. Many agents have prior military service themselves, and are very familiar with your situation and needs.

Retire Young With Real Estate

There is no one in the world that wants to work a day longer than he has to. But with economic instability leaving many of us worrying about how our future and retirement will be paid for, it is ever more tempting to invest in something concrete and allow ourselves to retire young with real estate investments.

There are two main ways of making money from real estate. The first is to buy older and dilapidated properties at prices below the market value, then renovate them and sell them on at a profit. Property development can offer significant returns in the short term, and allow you to enjoy a higher standard of living, although it may initially require a lot of work and there may be a lot to learn.

The other method of earning money from real estate is to buy properties and then let them out to people and become a landlord. Provided you are able to get tenancy agreements that allow you to make a profit on any mortgage payments you have on the property that you rent out, you can buy a portfolio of real estate that will pay for itself while also providing you with a salary.

Over time, as your investments mature, rising property values along with the fact that your mortgages will be paid off by the rental income mean that when you are ready to retire, you can either sell off your entire portfolio for a lump sum to live on, or you can continue to receive the income from your tenants in lieu of a salary from a job, while allowing you to enjoy your retirement earlier than you thought possible, and in style – driving your Bentely to the Country Club for lunch and going on vacations four times a year (irst calls of course).