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A Guide for Making a Real Estate Investment

Buying real estate is about more than merely finding a place to call home. Investing in real estate has become increasingly popular over the last fifty years and has become a common investment vehicle. Although the real estate market has enough opportunities for making big gains, buying and owning real estate is somewhat more complicated than investing in stocks and bonds. In this article, we'll go beyond buying a home and introduce you to real estate as an investment.

1. A Basic Rental Property

This is an investment as old as the practice of land ownership. A person will Buy Real Estate and Property in New Zealand and rent it out to a tenant. The owner, the landlord, is responsible to pay the mortgage, taxes, and costs of maintaining the property. Ideally, the landlord charges the necessary rent to cover the entire aforementioned costs. A landlord may also charge more to produce a monthly profit, but the most common strategy is to be patient and only levy enough rent to cover expenses until the mortgage has been paid, at which time the majority of the rent becomes profit. Furthermore, the property may also have appreciated in value over the course of the mortgage (according to the U.S. Census Bureau, real estate has consistently increased in value since 1940), leaving the landlord with a more valuable asset.

2. A Real Estate Investment Group

Real estate investment groups are similar to mutual funds for rental properties on a small scale. If you want to own rental property, but don't want the hassle of being a landlord, a real estate investment group is the solution for you. A company will Buy Real Estate and Property in Auckland or build a set of apartment blocks or condos and then allow the investors to purchase them through the company (thus joining the group). An investor can own single or multiple units (self-contained living space), but the company operating the investment group collectively manages all units - taking care of maintenance, advertising vacant units and interviewing tenants. In exchange for this management, the company takes a percentage of the monthly rent.

3. A Real Estate Investment Trust

Real estate has been around since our cave-dwelling ancestors started chasing strangers out of their space, so it's not surprising that Wall Street has found a way to turn real estate into a publicly-traded instrument. A real estate investment trust (REIT) is build when a corporation (or trust) uses investors' money to purchase and operate income properties. REITs are bought and sold on big exchanges just like any other stock. A corporation must payout 90% of its taxable profits in the form of dividends to keep its status as a REIT. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed its profits and then have to conclude whether or not to distribute its after-tax profits as dividends.

4. Leverage

With exception of REITs, investing in real estate gives investors a tool that isn't available to stock market investors. If you want to purchase a stock, you have to make the payment equivalent to the full value of that stock at the time you place the buy order. Even if you are buying on margin, the amount you can borrow is still much less than with real estate. Most "conventional" mortgages require 25% down. However, there are various mortgages that require as little as 5%, depending on where you live. This means that you can control the entire property and the equity it holds by only paying a fraction of the total value. Of course, your mortgage shall eventually pay the total value of the house at the time you purchased it, but you control it post the papers are signed.

Things to consider before an investment decision in real estate

1. Pricing Trends: Tracking the price movements of real estate in a certain area can be useful while making a decision to invest or Buy Real Estate and Property in Hamilton. To evaluate the growth witnessed in the a particular area it is helpful to gather information on pricing trends and compare it with the trends in the past, say over a period of three years. Studying past trends helps in arriving at a reliable estimate for the future.

2. Growth Factors: After identifying the real estate investment opportunities at hand and studying the pricing trends, the next step to Buy Real Estate and Property in Wellington is to identify and understand the factors that have influenced pricing changes within the market. Property value grows on the back of both macro and micro-economic factors that influence the development and expansion of the market.

3. Buying Activity: Establish whether a certain locality is a buyer’s or seller’s market by assessing the buying and selling activity in the area in order to Buy Real Estate and Property in Christchurch. This can be done by finding out how long the properties listed by developers or owners remain on the market.

This trend is called ‘Days on Market’ and can be studied over a period of two or three months based on online listings of properties. It can be done for several locations simultaneously and is a reliable method for researching existing supply and demand. A fairly accurate estimate can be made about future buying trends to Buy Real Estate and Property in Rotorua in those areas.

4. Central Locations and Suburbs or Outskirts: It is a good idea to extend the field of research to suburbs or even further outskirts of the area being analyzed. It is common for growth to stagnate in central locations as they exhaust the growing capacity with new developments. This automatically translates into the rapid growth of the adjoining locations to Buy Real Estate and Property in Tauranga which still have a capacity for development, both in terms of real estate projects and infrastructure.

Final words

We have looked at several kinds of real estate investment. However, as you might have guessed, we have only scratched the surface. Within these examples, there are numerous variations of real estate investments. As with any investment, there is much potential with real estate, but this does not mean that it is an assured gain. As with any investment, make careful choices and weigh out the costs and benefits of your actions before diving in.

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