Real Estate Investment The Smart Choice
LEVERAGE :
Leverage is simply the power to control a large investment with a small amount of money. For example, you can leverage investments in the stock market. If you have $10,000 to invest, you can purchase up to $20,000 worth of stock. That's a 50% margin, which is the most the government will allow.
With real estate, on the other hand, people regularly achieve a 90% margin. They do this anytime they buy property with a 10% down payment and a 90% loan. Why is it easy to borrow 90% or more to buy real estate, but only 50% to buy stocks? Good question! It's because the risk of real estate going down in value is very low and the risk of stocks going down in value is very high. Stockbrokers will tell you that a good day on the stock market is when only one-third of the stocks go down in value, and two-thirds go up.
Let's say that you buy a house for $100,000, pay $10,000 down, and take out a loan for $90,000.Now you control a $100,000 asset but have invested only $10,000. If you rent the house for enough to cover the mortgage payments and expenses, and if the house appreciates in value 5% per year, in two years, it will be worth over $110,000. The mortgage will have probably paid down $1,000 to $2,000. Let's say you could sell it for the $110,000. After you paid off the mortgage, you would have between $21,000 and $22,000 instead of the $10,000 you originally invested.
What was your return on investment? You bought the property for $100,000 and sold it two years later for $110,000. Many people would say your return was 5% per year or 10% total, but that's all wrong. Here's why! You originally invested $10,000, which was your down payment.
You borrowed the rest and your tenants made the payments while you owned the property.
When you sold it, you got back between $21,000 and $22,000, which was the difference between the sale price and what you owed. This means your actual return on investment was between 55% and 60 % per year! Not bad huh?
But here's the beauty of the program. You don't sell the house. Instead, you take $10,000 of the equity out of the first house and use it to buy a second one, and the whole process starts over again - except now you have two assets going up in value and two tenants paying down mortgages.
Real Estate Investing one 0 one Training
Let's get started with one of the most important facts about real estate. It's also the most obvious! Prices vary tremendously, not just from one part of the country to another, but even within the same state, and often within the same town.I will remind you that what makes property valuable in one place - like size - might be totally different from what creates value elsewhere - like the location. In some places, for example, rental rates, compared to purchase price with, are very high. In these markets, you may be able to buy at market prices, pay the going rate for financing, and still have positive cash flow. However, in most areas, rental rates are low when compared with purchase prices. In those markets, you have to search for wholesale prices, or find unconventional financing, or both, if you expect to rent the property for enough to cover expenses and make a profit.
With all the variables to consider when evaluating properties, let's start out with a few principles that don't vary.
If you really wish to Learn more then keep continuing reading and check the Lens for more Important Tips and Methods.
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margproperties
Nov 4, 2011 @ 1:38 am | delete
- Real Estate Investment the Smart Choice - Great lens and I have seen many people who just buy properties when it is cheap and sell when the price raises.I think that's the real investment.
Marg Properties
properties in chennai
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khyatirealities
Oct 10, 2011 @ 9:11 am | delete
- The first and foremost step of how to buy real estate property is to decide why you want to buy it. You may either want it to house your business or you may just want it for investment purposes.
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wolfie10
Aug 5, 2011 @ 1:05 am | delete
- you are welcome and i realize that it was only an example, but some people take it the way you explain it.I'm you going to update this lens as you can make it a very valuable information lens.
thanks
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wolfie10
Aug 4, 2011 @ 6:40 am | delete
- hi a very interesting lens and you made it all sound wonderful, the one thing you have forgotten to mention is the cost involved in buying and the cost involved in selling. And there is no guarantee the the price will go up 5% and the way things are at the moment they are more likely to go down.
Then there is interest rates, renting the house out to tenant and for how long the house maybe vacant and any maintenance issue you may face.
This is how some people get them self into trouble not considering all the facts.
sorry didn't mean to rain on your parade.
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britishidol2011
Aug 4, 2011 @ 7:14 am | delete
- Hello wolfie10,
Thanks for mentioning . But I had only discussed an example not the real fact . I will try to again make some update don't worry . Again thanks for valuable suggestion.
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Best Real Estate investing courses 2011
- Best Real Estate investing courses 2011
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britishidol2011
I am Author of the book Real Estate Investing . While I was studying in Havard USA . I had seen lots of people had sold their Houses for Mortgadge . S... more »
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