Investment Real Estate

Investing in real estate pertains to the acquisition of real estate for the purpose of gaining an additional source of income.  If you're looking to invest in real estate for any other reason, you're probably wasting your time and money.  It never makes sense to lose for tax purposes or other purposes.  If somebody tells you any benefits other than income potential, walk away, it's not going to end pretty.

Investment Real Estate Types:

There are three basic strategies to investing in real estate:

  1. Cash Flow
  2. Speculation
  3. Leveraging

All three strategies overlap on a very frequent basis, but usually one is the primary motive.

Cash flow investors are looking for a revenue stream from gross receipts, less gross expenses to provide them additional income.  If they don't manage the property themselves, this is passive income.

Speculative investors are usually buying value-add property that will grow in value either with the passing of time, by purchasing in the path of growth or by renovation and stabilization.  Fix and flip is speculation in that we speculate what it will cost to fix and what it will be worth when we're done.

Leveraging is a lender's game.  Investors want to leverage their money by putting down a smaller amount than the purchase price and borrowing the remainder due at a rate and term that will be less than the net operating income of the property and thereby provide a rate of return on their money invested.  Lenders on the other hand are looking to leverage their money by having the investor put down a percentage of their funds and having it paid back at an interest rate that merits the risk, while maintaining the security that if the investor doesn't pay, they will own the property as collateral, protecting their investment.

 

Keys to successful investing:

  1. Quality analysis.  This is where a real estate agent can be worth their weight in gold (sometimes literally).  Only work with agents that have a thorough understanding of how properties operate in your area.
  2. Speculating is not gambling.  Establish why the property has a high probability of appreciating and how long it will take to do so.   The property may appreciate from $100k to $100MM, but if it takes 40 years to do so, it still wasn't that great.
  3. Know your opportunity costs.  If other comparable properties are selling at 10% cap rates and you buy at a 9%, even if it cash flows, you may have just made a bad deal.
  4. Have quality lenders set up to finance your deal in advance of doing the deal. 
  5. If you're not an expert, always work with somebody who is. 

 

Mark Bitton is our resident Investment Expert.  Mark holds the CCIM designation and has a lot of experience in analysis, acquisitions, leveraging and property management. 

For more information on consulting and property management services, visit http://axiom-properties.com

 

If you're interested in joining an our Professional Realty Investment Club, please contact Mark Bitton.

 

 

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