The Changing World of Real Estate Investing

The real estate fad is over If you’ve been dreaming of “Flipping” real estate because you’ve heard of people making a fortune flipping houses – YOU ARE TOO LATE! The real estate fad has come and gone.

Like all fads, the “Flipping Real Estate Fad” lasted only a short period of time. This is not the first get rich quick fad to occur and it certainly won’t be the last. Whether it’s flipping real estate, day trading stocks, breeding ostrich eggs, or trading tulips, our history is replete with examples of get rich quick fads that took the world by storm and ended badly for nearly everyone.

One of the first recorded examples of a get rich quick fad was the Tulip Craze that occurred in the Netherlands in the 1600’s. Tulips had just recently been imported from Turkey into the Netherlands. Many of the richest Dutch citizens started collecting the flowers and proudly displayed them in their homes. As time went by, the middle class took notice that this flower was so prized by the rich, and also started collecting the flowers. Before long, everyone wanted tulips and tulip bulbs and the prices started going up. As the prices rose, people started trading tulip bulbs as if they were a commodity or a stock. Someone would hear of a neighbor that had traded a tulip bulb and made a big profit. The neighbor also wanted to cash in on this new venture. Before long, it seemed like everyone was trading tulip bulbs. It got so ridiculous, that entire estates and life-savings were traded for a single tulip bulb!

At some point, prices became so ridiculously high that a few smart investors realized that the tulip fad couldn’t continue forever. These “smart money” investors sold their entire stock of tulip bulbs and locked in their massive profits. Others followed suit and soon it became apparent that the market for the bulbs had disappeared. Suddenly, everyone wanted to sell their tulip bulbs and there were no buyers. In no time, panic selling caused prices to drop so far and so many people lost money that the country’s economy was propelled into a depression. So ended one of the world’s first recorded Get Rich Quick Fads.

Get Rich Quick Fads have continued to occur from the time of the great tulip craze to the present. The technology bubble of the late 1990’s was a prime example of one of these fads. The price of internet and technology stocks soared. Many of these inflated stocks were of companies that had no way to make money. Many thought that the price of technology stocks would continue to go up forever, because “this time things are different”. RIDICULOUS! The value of a company who can’t make money is ZERO! People were blinded by greed and simply didn’t realize this reality until the crash occurred.

The economy of the United States took a double hit in the first two years of the new millennium. First, the tech bubble burst taking the entire stock market down with it. Then, a small group of terrorists brought our country’s economy to its knees with the attack on the twin towers of the world trade center. In response, the Fed lowered interest rates to a 40 year low. This lowering of interest rates along with the introduction of relaxed lending practices kept our country’s economy strong and opened up the possibility of home ownership (and real estate investment) to more Americans than ever before.

The increased demand for real estate also increased the demand for all real estate services. Homebuilders, realtors, rehabbers, appraisers, lenders, and everyone else in any real estate related business prospered. The demand for houses exceeded the supply and many smart investors began to speculate on houses. This was the birth of the house flipping craze! As the smart money began to make money “flipping”, the middle class took notice and also started flipping. Before long, it seemed like everyone was flipping property for a nice profit. Demand for houses increased and it seemed like there was no limit to house prices. New investors entering the flipping business drove up the demand for houses, which increased the prices. The more prices went up, the more new investors entered the market and bid up prices even higher. It became a vicious cycle. It got so ridiculous that new “investors” would camp out in hot markets just for the chance to bid on pre-construction projects.

This vicious cycle continued through late 2005, at which time the real estate bubble started to deflate. The smart money realized that prices had gotten ridiculously high and that the end was near. These “smart money’ investors started selling their real estate portfolios

The real estate fad is over. Demand has dried up and the number of houses on the market is increasing. In many areas, prices have already started down and this trend will surely increase as time goes by. The home buyers and “investors” who used interest-only loans, negative amortization loans, and adjustable rate loans over the past few years will soon have payments that are drastically higher, when their promotional rates expire. Millions of these people will not be able to afford the higher payments and will lose their homes to foreclosure. All of these millions of additional houses on the market will further depress prices and prices will likely stay low for many years to come. The flipping fad is ending as suddenly as it began. With the lack of retail buyers, there simply isn’t a demand for flipped houses. Millions of the new “investors” that started flipping during the recent fad will go out of business, losing a lot of money.

Understanding Your Real Estate Investment Objective

Conceptual paper house on the washing line – 3d render

Real estate investment involves placing your capital in real property with the expectation of generating favorable rates of return along with the amount invested (i.e., you want your investment back with a return to cover the risk). As a result, many investors are very interested in wealth maximization and therefore are always searching for competitive rates of return, and this is why many turn to real estate investing. To maximize yields consistent with acceptable levels of risk.

Okay, but bear in mind that yields from a real estate investment result from a host of sources that include annual after-tax cash flows, equity buildup through appreciation of the property, and cash flow after tax once the rental property is sold or upon some other form of disposition. Fair enough; so let’s move on and discuss some typical investment objectives you should understand.

Leverage, of course, is paramount to any investment decision. It is always an advantage to an investor to use other people’s money to magnify the rate of return on investment equity at the same time being able to control the investment property. This is made possible when you are able to borrow money against the rental property, and in fact, allows you to control a larger investment than would be possible without borrowed resources. So always approach your decision to invest in real estate seeking to leverage the property and use other people’s money to help get you your rate of return.

Your personal investment objectives are also important. You may want to purchase a rental property in a location that will insure low vacancies. Or perhaps you want ownership and control of a property that will give you a pride of ownership. Maybe you just want to acquire a rental property to insure your financial security upon retirement. Your own particular objective for investing in real estate is very important.

Tax shelter advantages might pose another objective you have that would drive you to make a real estate investment. Investors that own rental property can defer tax on income through depreciation, a variety of tax credits, the conversion of qualified into qualified income sources into capital gain tax treatment, and more.

Finally, you might simply want to diversify your portfolio. Perhaps the role in selection of real estate as an investment is your way of spreading risk management over different types of assets.

Okay, but here’s the bottom line. Regardless what objective drives you to real estate investing, you must not neglect doing your homework and running the numbers on any rental property you consider purchasing. Like the proverbial saying, “measure twice and cut once.” That’s how the most prudent and successful investors do it.

Real Estate Investment Options Explored

There are many investment options available to those who are considering real estate as a thoughtful method of maintaining the longer term income and profits.

And why on earth shouldn’t you consider these options? This can be a lucrative proposition, that millionaires all over the world will agree, to create a massive fortune quickly. However, real estate investing could be a very risky venture therefore your necessity of having some more stable ways of bringing in money in order to establish a truly diverse portfolio plus a better security structure for your financial future is imperative.

Even within the massive world of real estate investment you will be able to find different ways of investing and each one of them will bear different risks level.

So let’s explore some of them.

Commercial Real Estate Investment

Commercial real estate investment is an effective place to begin due to the fact that it would be relatively secure compared to some other styles of investing your hard earn money. The drawback with the commercial real estate is the idea that in most situations it requires a large some of money to start with. This option many real estate investors do not even contemplate until they have built a large portfolio and also have tons of money to risk.

Let’s say you acquired a large office building and leasing it out to prospective businesses. Your income stream should be relatively stable because most organizations and/or businesses that lease from you will need to stay on a long-term basis (generally minimum commercial lease is 3 to 5 years). Majority of the businesses whether it is an accounting or a doctor, prefer to stay at the same location for as long as they can, due to establishing the steady stream of clientele. So in a perfect world it would supply you with a stable stream of income.

House Flipping Investment

Lately this type of real estate investment became one of the most popular sort of investing and many folks have discovered that this is also a great way to make or spend money very rapidly. It happens to be a high-risk venture to say the least but the rewards are equally high every time a flip goes well. You should decide if you are willing to take a gamble and be able to hold on to the property if you can’t flip it in the expected/desirable time, just because house flips are part skill and part luck.

Residential Rental Properties Investment

Becoming a landlord, while perhaps not as glitzy as owning business properties throughout the entire city or flipping fabulous properties for immediate profits, is a superb way to work yourself inside rather comfortable retirement. It is a long-term method of real estate investment still the payoffs may well be rewarding when all is alleged and done. For your cautious real estate property investor this is a worthy brand of real estate investment to pursue.

Pre-construction Investment

Pre-Construction profits are even riskier than house flipping in many instances, particularly as it has become so popular in recent years. The trick with this sort of real estate investment is acquiring the right property in the perfect market. Provided you can fall into an American city that may be close to have got a serious housing shortage or possesses the beginning stages of a housing shortage (for example few affluent communities with older houses or coastal communities have had recently) one stands to create quite a fortune for himself. The thing is until this field is extremely speculative and really competitive.

Lease or Rent to Own Investment

Lease to own purchases can usually bring better profits. A large number of investors/owners consider this particular real estate investment to be more desirable vs simple renting for a number of reasons.

Firstly, those that dream to own their homes are more likely to take much better care of their “future homes” than their counterparts, who are just renting. Also, if for whatever reason they decide to move elsewhere and do not complete the acquisition, you will be inheriting the extra money, that had been paid toward the down payment and most likely have no extensive repairs.

Last but not least, by collecting the extra money that supposed to be applied toward the purchase or down payment, you will often be helping a family that may have hit a trouble spot, to accomplish the American dream of home ownership. And that alone should make you feel good.

Real estate investing is a superb opportunity to build great fortunes. You need to decide where you desire to begin your journey into this lucrative field. Remember that once you have begun your properties investment career it is a good idea to employ different types of investments for diversification and controlling the risk, because this is a volatile market at best.

Building Wealth With Real Estate

Nowadays, many people believe that real estate investing is the perfect way to ruin your finances. Well, you couldn’t exactly blame them for their unfounded belief because of the recent housing bubble and the current economic condition that the country is in. But what if someone tells you that all that negative news about investing in real estate are not exactly true and that many people are still making top dollar by managing investment properties?

You’re probably not going to believe this but it is true. In fact, some of the richest and wealthiest people in the country today are investors. This only proves that there is big money to be made in the real estate market and you just have to get over your fears of investing in real property and take advantage of this grand opportunity.

If you think that you won’t be able to make a decent living with the current home prices, don’t worry because it won’t last long. As the saying goes, when something hits rock-bottom, it has nowhere else to go but up. The same can be said for home or commercial prices. Once the economy fully recovers from the recession, a brighter future awaits the real estate market.

Instead of fretting over low home prices, you should take advantage of the situation to acquire multiple properties without exceeding your budget. Once the property market picks up, you can earn a higher capital gain which is the profit resulting from an investment that exceeds the purchase price.

Investment property is also one of the best ways to prepare for your retirement. Why, you ask? It is because managing properties can offer you long-term investments. For instance, instead of immediately selling a house that has been repaired and renovated, you can rent it out by finding tenants for the property. This way, you can collect a monthly rental income. And if you have multiple high-earning rental properties, you can generate an even bigger income.

Advantages of Real Estate Investment Strategies

If you are purchasing a property now then you require to research, research and more research to assure that you are purchasing a good investment instead a property that will allow you with a small hole in your Pocket. So you have seen a property in which you are interested in. Then you require visiting the road, where you are purchasing and the nearby areas on a number of occasions. Is a spot where the young’s hang out on a weekends. Walk around the roads on a large number of nights and you may notice expected noise disturbances.

If you are purchasing a property that requires reviving, make sure that you get a large number of quotes for the full works. If you are renovating and buying to create money then you require getting the right figures at the beginning just to make sure that you are being naturalistic. If you are being offered to rent out your property then check with an accomplished sole letting agent, instead of a properties Agent.

The Estate Agent will like you to purchase the property to profit their commission and so would keep back the real truth. A Sole Letting Agent has no other schedule other than to get a letting Property, that will help them to make money and so they are farther more likely to offer you the true picture.

Investment in properties has offered capitalists best returns than many other investment options. Real Estate Investment is one of the securest investments available. The security of the investments is becoming more and more enhanced these days. It is a secure way to begin making your retirement finance and personal wealth provided if you behave wisely.

It provides best long term returns and oftentimes even Short term profits. Investment can bestow you large profits if you follow some tips. Most of the countries provide Wide properties Investment chances. Investors can very easily find superior profits in rehabs, rentals and high-end properties.

Purchasing Properties to use it as rentals is really very successful and most popular Real Estate Investment Strategy. The high end Properties has very powerful need among Investors, particularly in the most suitable areas, such as Paris. The most flourishing Investment Strategy is rehabs. Rehabs are as well the most risky kind of Real Estate Investments. If there is high demand of properties then the chance for Investors growths widely. Finished Real Estate Properties offer great opportunity for Investors who are capable to rehab and then sell or rent Properties.

High Profits In Real Estate Investing

We all hear how the real estate bubble is about to burst. Foreclosures are at the highest levels in history and the news media portrays nothing but doom and gloom. Is this completely true or are there actually safe and lucrative investment opportunities for the savvy investor? The answer is a resounding yes!

Private investors, who earn high profits by investing in real estate, know the market is continually changing. This one factor is what motivates them to always stay ahead of the information curve. While the pessimists are concentrating only on the downside of the market, these investors search for and find new opportunities.

There are always certain niche markets which do not fall within the realm of traditional demographics. In other words, a niche real estate market is driven by unusual circumstances. The informed investor searches for areas which might be experiencing unusual growth caused by economic or political changes. Demand for housing in an area might be high but not nationally recognized. This can hold true in small towns or certain subdivisions within a larger city.

Recently my partner and I visited a small town which is experiencing a growth rate, projected to go from a population of 19,000 to 43,000 within four years, (2011). Supply and demand for housing is an extremely critical issue. A recent political change has caused this extreme growth. In this situation, many private investors are experiencing fantastic profits because they were willing to expend the time and effort to learn more about these initiatives. This is only one example of what is referred to as a niche market.

Experts always state how location is paramount to any real estate investment. This factor has never changed and applies more today than ever before. A niche market can be created by other factors. Major demographic changes can be a significant factor. Consider the movement of the “Baby Boomers.” Beginning in 2007 the baby boomer generation is beginning to retire. Many of them are relocating or purchasing second retirement homes.

As with any sound investment opportunity, you should always know the facts. If you find a niche market, you want to concern yourself with the reputation of the developer and the builder. They are not always the same entity. You will want to pay special attention to the quality of workmanship, completion deadlines, housing demand, competition, and potential profitability.

Is the city or county pro-growth and are there tax incentives or financing available from the city. Many times there are special bonds issued to lower costs of development in order to attract more highly qualified developers with the financial resources to build and complete these projects as quickly as possible. These incentives might allow you to purchase an investment property with a monetary advantage that places you ahead of your competition. Here’s to your profitable investing!

Gerald R. Gallegos, founder, and co-owner of Wealth2020, Inc., obtained a Bachelor of Science degree in Civil Engineering from the University of Denver. Mr. Gallegos has an extensive background in business development, sales training and real estate investing. Throughout his career as a real estate investor, he has perfected and implemented a process that allows investors to purchase properties with little or no money down. He especially enjoys transactions that involve purchasing or selling properties by utilizing a strategy of lease/option contracts. He actively mentors other, new real estate investors to assist them in getting started on the right track.