We take a look at the prospect of making investments
in real estate - how it fares vis-à-vis other investment opportunities.
Real estate investment trusts allow small time investors to make
investment in real estate property sans the bother of managing them personally.
There are real estate investment loans and mortgage on real
estate property that allow you to finance your real estate deals.
Real estate investment property
In spite of the many investment avenues open today, real estate investment
continues to be a popular opportunity. Real estate investment has shown
consistent growth in value over the years and has remained stable, even
in times of crisis. Investment in real estate remains a dream investment
to many - it provides them equity and generates cash flow.
investment in property is less volatile than shares. As your property
grows in value, your capital grows. Occasional periods of boom have seen
many homeowners and real estate property owners gain windfall profits.
But that is not always the case. The 'buy and hold' real estate investment
pattern involves buying real estate and renting it out to tenants.
'buy and sell' pattern of real estate investment in property involves
buying and selling property for profits. This could involve buying property,
investing in improvements and then re-selling for a larger price. This
involves timely buys and shrewd sales. There are many facets of real estate
investment and it is extremely important to be familiar with the real
estate market and how it works in order to be successful.
Real estate investment trust
A real estate investment trust (RIET) is a company that engages in financing
real estate and operating real estate that produces income. Congress created
RIET in the 1960s so as to make large-scale investments in income-producing
real estate available to the small investors. The real estate investment
trust was a channel for small investors to consider investment in large-scale
commercial real estate. This was done by investing in stocks of the RIET.
By making use of the RIET, an investor could diversify his real estate
The distinct advantage with investing through a real estate investment
trust was the professional management of the real estate opportunities.
RIETs can be classified as follows:
Equity REIT: This type of real estate investment trust
engages in a wide range of real estate services such as leasing, property
development and tenant services. Such a REIT can develop property so as
to add it to the portfolio and not for resale.
Mortgage REIT: Such real estate investment trusts extend
credit to real estate owners. This can also be done by acquiring loans
or mortgage-backed securities.
Hybrid REIT: Such a real estate investment trust owns
properties as well as extends loans to real estate operators.
REITs invest in different types of real estate investment property such
as shopping centers, apartments, warehouses, office blocks, hotels and
nursing homes. Some REITs specialize in a particular type of real estate
Investment property loan
Historically, investment property loans took care of financing real
estate investment in property. The property provided the security for
mortgage financing. Rental incomes took care of paying the interest on
the investment property loan. But the real estate recession of the early
1990s forced real estate developers and investors to reconsider their
Investment property loan is utilized to purchase real
estate for investment purposes. The factors that decide on the qualification
and extent of investment property loan are investor's income, reserves
and credit scores. Future rental incomes are also taken for the purposes
of credit rating.
Mortgage investment property
Mortgage on investment property can be taken for financing purposes.
Sometimes even up to 100% of the value of apartment houses is taken for
mortgage on investment property. Mortgage interest on investment property
is fully deductible. Mortgage loans for investment property are either
amortized or paid with rental income.
Buying investment property
When buying real estate for investment, look for the benefits of capital
growth. The area where you are buying the real estate investment property
should be in a location that will ensure strong rental returns and ongoing
tenancy. If the property can be sold easily, it is an added advantage.
If you are considering buying investment property, you must protect yourself
from potential scams and hazards. Here are some tips that will stand you
in good stead while buying investment property.
- The local real estate investment group can be a valuable resource
to check on any particular real estate deal.
- Placing your deposit in an escrow account saves you the bother
of chasing your money in case the deal does not go through.
- Ensure that you have an attorney or agent when you close your
- Local government agencies can help you with the title search
so that there are no pending liens.
- Including a contingency clause in the contract allows you the
choice of canceling the deal in case there is a problem.