Tutorial: Exploring Real Estate Investments

Basic Rental Properties

This is an investment as old as the practice of landownership. A person will buy a property and rent it out to a tenant. The owner, the landlord, is responsible for paying the mortgage, taxes and costs of maintaining the property. Ideally, the landlord charges enough rent to cover all of the aforementioned costs. A landlord may also charge more in order to produce a monthly profit, but the most common strategy is to be patient and only charge 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, leaving the landlord with a more valuable asset. According to the U.S. Census Bureau, real estate has consistently increased in value from 1940 to 2006, then proceeded to dip and rebound from 2008 to 2010. (To learn more, read The Benefits of Mortgage Repayment and Understanding Your Mortgage.)

There are, of course, blemishes on the face of what seems like an ideal investment. You can end up with a bad tenant who damages the property or, worse still, end up having no tenant at all. This leaves you with a negative monthly cash flow, meaning that you might have to scramble to cover your mortgage payments. There is also the matter of finding the right property; you will want to pick an area where vacancy rates are low and choose a place that people will want to rent.

Perhaps the biggest difference between a rental property and other investments is the amount time and work you have to devote to maintaining your investment. When you buy a stock, it simply sits in your brokerage account and, hopefully, increases in value. If you invest in a rental property, there are many responsibilities that come along with being a landlord. When the furnace stops working in the middle of the night, it’s you who gets the phone call. If you don’t mind handyman work, this may not bother you; otherwise, a professional property manager would be glad to take the problem off your hands, for a price, of course. (For further reading, see Tips For The Prospective Landlord.)

Real Estate Investment Groups

Real estate investment groups are sort of like small mutual funds for rental properties. If you want to own a rental property, but don’t want the hassle of being a landlord, a real estate investment group may be the solution for you. A company will buy or build a set of apartment blocks or condos and then allow investors to buy them through the company, thus joining the group. A single investor can own one or multiple units of self-contained living space, but the company operating the investment group collectively manages all the 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.

There are several versions of investment groups, but in the standard version, the lease is in the investor’s name and all of the units pool a portion of the rent to guard against occasional vacancies, meaning that you will receive enough to pay the mortgage even if your unit is empty. The quality of an investment group depends entirely on the company offering it. In theory, it is a safe way to get into real estate investment, but groups are vulnerable to the same fees that haunt the mutual fund industry. Once again, research is the key.

Real Estate Trading

This is the wild side of real estate investment. Like the day traders who are leagues away from a buy-and-hold investor, the real estate traders are an entirely different breed from the buy-and-rent landlords. Real estate traders buy properties with the intention of holding them for a short period of time, often no more than three to four months, whereupon they hope to sell them for a profit. This technique is also called flipping properties and is based on buying properties that are either significantly undervalued or are in a very hot market.

Pure property flippers will not put any money into a house for improvements; the investment has to have the intrinsic value to turn a profit without alteration or they won’t consider it. Flipping in this manner is a short-term cash investment. If a property flipper gets caught in a situation where he or she can’t unload a property, it can be devastating, because these investors generally don’t keep enough ready cash to pay the mortgage on a property for the long term. This can lead to continued losses for a real estate trader who is unable to offload the property in a bad market.

A second class of property flipper also exists. These investors make their money by buying reasonably priced properties and adding value by renovating them. This can be a longer-term investment depending on the extent of the improvements. The limiting feature of this investment is that it is time intensive and often only allows investors to take on one property at a time.

REITs

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 created when a corporation (or trust) uses investors’ money to purchase and operate income properties. REITs are bought and sold on the major exchanges, just like any other stock. A corporation must pay out 90% of its taxable profits in the form of dividends, to keep its status as an REIT. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed its profits and then have to decide whether or not to distribute its after-tax profits as dividends.

Much like regular dividend-paying stocks, REITs are a solid investment for stock market investors that want regular income. In comparison to the aforementioned types of real estate investment, REITs allow investors into non-residential investments such as malls, or office buildings, and are highly liquid, In other words, you won’t need a realtor to help you cash out your investment. (For further reading, check out How To Analyze Real Estate Investment Trusts, How To Asses A Real Estate Investment Trust and The REIT Way.)

Leverage

With the exception of REITs, investing in real estate gives an investor one tool that is not available to stock market investors: leverage. If you want to buy a stock, you have to pay the full value of the 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, depending on where you live, there are many types of mortgages that require as little as 5%. This means that you can control the whole property and the equity it holds, by only paying a fraction of the total value. Of course, your mortgage will eventually pay the total value of the house at the time you purchased it, but you control it the minute the papers are signed.

This is what emboldens real estate flippers and landlords alike. They can take out a second mortgage on their homes and put down payments on two or three other properties. Whether they rent these out so that tenants pay the mortgage or they wait for an opportunity to sell for a profit, they control these assets, despite having only paid for a small part of the total value. (For more on taking out a second mortgage, read Home-Equity Loans: What You Need To Know and Home-Equity Loans: The Costs.)

The Bottom Line

We have looked at several types of real estate investment, however, as you might have guessed, we have only scratched the surface. Within these examples there are countless 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. Make careful choices and weigh out the costs and benefits of your actions, before diving in.

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With the right knowledge, combined with the right marketing strategies and tools, becoming the best real estate agent in your town is just a whisker away.

You may have asked yourself “how do I become a real estate agent?” In this article I will not only show you how to become a real estate agent and but also a very successful one.

Below, I will be discussing step by step guide you need to break into the league of best top performing agents and brokers in your town.

Step by step Guide in becoming a successful realtor in your town real estate

1) Get a real estate Licence

Your first step in becoming a real estate agent is to obtain a real estate licence. Obtaining a real estate licence will allow you to operate legally as a real estate agent. Though, the process of obtaining a real estate licence defers from state to state in the US and also from country to country.

In some states in the US, you will be required to pass through a real estate education, write an exam and if you pass the exam, you will be issued a real estate licence to operate. In some state in the US also, you will be required to work under a broker before you can operate alone.

Because of the differences in procedures in obtaining a licence, it will be wise to check out the requirement in your state or country before commencing.

2) Choose a Real Estate Niche

This is the first step you need to take before any other thing. First of all decide on the niche that is must suitable to you financially and otherwise. Many realtors make the mistake of jumping into any niche they see because of the amount of money involved in that niche real estate without first of all finding out if they will have any comparative advantage in that niche.

I have already written an erticle on how to choose a real estate niche and if you are looking for tips to farm and dominate your niche online, i have also writen an article on how to farm your niche on the internet.

Your success or failure as a newbie real estate agent all depends on the type of niche you choose to start with. My advice to you is never choose a niche that is too big for your capacity.

Your success or failure as a newbie real estate agent all depends on the type of niche you choose to start with
3) Avoid ”The Adolf Hitler’s mistake

Some times ago i was reading the history of world war ii and it struck me that Adolf Hitler’s Nazi Germany could have won the second world war if they had focused on taking on and conquering one nation at a time instead of taking them on all at once.

In today’s world, many real estate agents are still falling victim of the same mistake I term ”The Adolf Hitler’s mistake.

Rather than taking on a niche based on their financial capacity, conquer it before moving on to another to conquer it, they chose to take them on and conquer all the niches all at once thereby getting their hands burnt in the process just like Adolf Hitler.

4) Choose a Real Estate brokerage

If you are not financially okay to pull it off alone, then your best bet would be to affiliate with a real estate broker. Brokerages will offer you so many facilities that will ease your financial burden as a newbie realtor.

This facilities includes, mobility, office space and gadgets, a recognised brand name and a website.

Take Note: Even if your brokerage offers you a website, its highly recommended you get your own website because the day you will leave that brokerage, the only thing you will take along with you is your personal realtor website together with all its leads and years of hard work that was put into the website.

Also pick a day each week in which you will work on or implement each plan and strategy

5) Get a real estate website

It’s very important, don’t fall victim by relying entirely on your brokerage website because the day you will leave them, you are not only losing the brokerage website but all the years of effort you have put into it and you will end up starting all over again.

But with your personal realtor website, it goes with you were ever you go together with all the leads it generated and the hard work you have put into it over the years.

Because a website is the centre piece of a successful real estate agents marketing strategy you need a website that comes equipped with all the tools necessary for a successful online marketing campaign.

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