I have clients and friends who approach me regarding investing in Real Estate daily. There are many types of Real Estate Investing from REIT’s, commercial properties, industrial properties and of course basic residential properties. I am approached about residential properties the most.
For most people who are looking to invest, residential investment is an easy introductory. It’s very simple; you buy a property and rent it out. You collect your monthly rent and it usually pays the mortgage, bills, taxes and any improvements needed. In an ideal world this is how it works and eventually you pay off the mortgage and you have capital to invest in another property. After 10 or 15 years you can continue to flip houses because you have built up the funds to invest in more properties and so on. If you’re enthusiastic with your money you can pay off these investments faster and start to move on to much bigger projects. You can then start to invest in land, or houses which are ready to be torn down or renovated.
At this point you need to look for builders, contractors, and people who can build on the land or tear down a house and rebuild a house. After you start to see your houses built and sell for a profit after paying all of your expenses you can start to invest in apartments and condo buildings. You can also buy shares or find other investors. Since you have been investing in properties for the last ten years you will have a great relationship with mortgage brokers, banks, and private funds and also have some money saved to put into bigger projects.
These bigger projects involve commercial properties which could include strip malls, condo development or industrial properties. The other options include investing in a REIT’s.
Below is two paragraphs from an article from investopedia.com written by ANDREW BEATTIE in his article, “How to invest in Real Estate”. He explains REIT’s:
Real estate has been around since our cave-dwelling ancestors started chasing strangers out of their space, so it’s not surprising that Wall Street has found a way to turn real estate into a publicly-traded instrument. A real estate investment trust (REIT) is created when a corporation (or trust) uses investors’ money to purchase and operate income properties. REITs are bought and sold on the major exchanges just like any other stock. A corporation must pay out 90% of its taxable profits in the form of dividends to keep its status as an REIT. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed its profits and then have to decide whether or not to distribute its after-tax profits as dividends.
Much like regular dividend-paying stocks, REITs are a solid investment for stock market investors that want regular income. In comparison to the aforementioned types of real estate investment, REITs allow investors into non-residential investments (malls, office buildings, etc.) and are highly liquid.”
Here are a few simple laws for the amateur investor to follow:
Law #1: Buy when the market is low and never sell. If you must sell then sell when the market is high. Have you noticed there are not too many commercial properties for sale?
Law #2: Buy when the interest rates are low. You want to pay as low as possible to invest in this property.
Law#3: Commercial Investing is better than residential. There are too many laws to protect residential renters. Whether or not this is a good or bad thing is up for debate. Not receiving a rent cheque for 6 months can mean foreclosure for a person investing on a tight budget. In the commercial property world if your tenant doesn’t pay you, you can lock the door after 16 days. Typically a commercial tenant will pay you because they know if they don’t pay you they are out.
Law #4: Buy condos before they are being built. If you like the condo markets buy something that is not built yet. You will see a nice return the day you get your keys. The longer the close the better it is for you and your investment. While the property value goes up around the condo, you will reap the benefits of waiting on your investment to finish building. After a few years sell it. Start the cycle again. When the fees are getting too high you know it’s time to sell.
Law #5: Do your homework: If you decide to sign a lease agreement with somebody, do background checks, credit reports, past landlords, bank statements, post dated cheques, and so on. Do as much research on your tenant as possible. Why did they leave their last place? The last thing you want to have is someone who is a tenant who just moves from house to house without paying any rent every three months.
Law #6: Get advice: Get information from everybody you can think of about your investment. Whether or not you think you know what you’re doing, get a second opinion. Speak to Real Estate agents, accountants, lawyers, property managers; take a course do what you have to do to educate yourself. The one thing I have realized in this world is that you never stop learning. You can know everything and not know anything. Somebody will educate you regarding your investment. It is not embarrassing to ask a few questions or make a few calls; it is worse to throw away your life savings or get involved in a lawsuit or have the municipality down your throat because you were too proud or lazy to ask some questions.
I hope these laws get you started and yes I know there are many other rules or laws to follow but these are just a few to get you thinking and started. Happy Hunting, see you next week!