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.
Real estate 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.
The '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 investment portfolio.
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.
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 financing options.
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.