Starting Out In The Home Real Estate Investment Investing Business
Share: The investment in residential real estate business has lost much of its popularity for the last few years
. Ironically though, many people jump on board when real estate markets are humming with activity and jump off and move on to other activities when markets go down. This is the way human nature is, but this also results in lots of real estate investors leaving much money on the table.
If you can understand the residential property market dynamics and move in opposite of the property market, you can garner good money as long as you operate within investing fundamentals property investing.
When the real estate market is moving up, up and up, investment in it can be a whole lot easier. It is however a hard to time this market if you have not done enough research or if there is a lack of market knowledge.
You should make yourself proficient with four profit centers for investing in residential real estate and you should make sure that your investment in residential real estate takes them into account.
1. Cash Flow - You must consider as to how much income does a particular residential property bring you each month and what expenses you pay from it. It would seem easy to you in the start as you would just need to deduct the mortgage payment. However you may need to factor in things like expenses, repairs, maintenance, legal fees and vacancy and then all these things begins to add up.
2. Appreciation - Seeing your property prices going up when you own it is understandably most profitable part about owning it. However as recently seen, the property prices can go down as well. This results in leverage through bank loans becoming a double edged sword. It increases your returns if you make purchase in an appreciating location, but it may pile up your losses if property price goes down there. When you buy a property you must plan to hold on to it for at least 5 years to weather these ups and downs which come in between.
3. Debt Payment -Every month you have to make mortgage payment to your bank and a small part of the loan gets reduced. If you have raised loan on interest basis then your monthly payments would be lower, however you won't get any of the benefits of pay down of the loan. If you intend to hold on to your real estate for a longer duration and you have to pay a large interest then it is advisable to go for an accruing loan as it will reduce the balance of your investment loan and help in making it go away. In many cases it may be more attractive for you to refinance your property to increase cash flow in place of just disposing it.
4. Tax Benefits -Many individuals are exposed to Alternative Minimum Tax (AMT), those who have large number of properties and are investors and not professionals from real estate may see that they are debarred by some of the good tax breaks given by IRS. More badly, persons who just focus on short term deals in real estate like rehabs or flips get their earnings treated like an income earned.
by: Michael C. Miller
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