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Useful Tips Real Estate Investments

Tips to Help You Make Money in Real Estate Investing

Investing in real estate is a great way to add a moderately high degree of reward to your portfolio without taking on a significant amount of extra risk. Even though you can get a higher rate of interest as a private investor in real estate through mortgages, the risk of default is much smaller than you might think after reading all of those horror stories about defaults in the wake of the crisis of 2008 and 2009. While some people did go into foreclosure, the rate in Canada was much smaller than the rate in the United States. So the risk you take by entering the real estate market is almost negligible — the last bill that people will overlook is their mortgage, because they do not want to go into foreclosure. Plus, a reputable broker will not connect you to real credit risks. Many analysts recommend including hard assets and/or housing in a portfolio, because these types of assets resemble the performance of blue chip stock investments. You won’t see huge jumps in value, but you should see slow, steady growth as time goes by.

For most people, the biggest investment they have made in the real estate market is their primary residence. A significant amount of resources go into owning and maintaining that home, but there are also other opportunities for making money out of this part of the economy, including investing in a real estate income trust, real estate limited partnerships and purchasing secondary properties.

What is important when making your decision is the research you put in to the transaction. If you are looking at purchasing rental properties or properties to “flip,” you need to look closely at the area where you have interest and pay attention to trends. Obviously, current real estate prices and values are an important consideration, but so are some other issues that require a little more research. Job growth (or stagnation) in the area, economic development and growth in the regional gross domestic product are also important metrics if you are trying to predict an increase in real estate. A house that is available at a very low price is listed at that value for a reason. Instead of going for the cheapest property, look at places that will have demand over the long haul. places where jobs are coming in are more likely to show that demand.

If you are considering buying a property to rent out to vacationers, think about expenses as well as values. It is true that values of vacation homes are on the rise, but upkeep costs are usually a lot higher than rental residences where the tenants live there full time. A lot of vacationers basically treat the home as a glorified hotel room, and so they are careless with appliances, fixtures and decorative items. This means that you may have some significant upkeep costs each month — or even each week. You can recoup some of these costs out of your vacationers’ deposits, but you also have the hassle of bringing in maintenance crews each week or paying a management company a hefty fee to do it for you. Over time, a vacation home can cause more headaches than it is worth.

If you are interested in a real estate income trust, that is a place to get the returns that you want in a safer environment. However, there is also some connection between these trusts and the volatile price changes that are a part of the stock market. When interest rates started to tick upward in May 2013, a lot of these trusts suffered as a result. While interest rates have dropped since then, most analysts predict that interest rates will start to climb again in the short term, making these trusts a little more risky.

If you think that investing in the real estate market is the right move for you, there are many options, ranging from funding private loans to joining a mortgage investment company that funds a variety of loans to minimize your global risk. That way, when an individual defaults on a loan, the income you receive from the other loans mitigates the loss. People are seeing profits come from their real estate investments each year, and you can become one of them.

Daniel K. Akowuah | Mortgage Professional / DLG Underwriter
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