It is important for you to first understand why you should invest in real estate. Because once you understand “why” real estate investment is the best vehicle of wealth creation then “how to” is the easy part. It is the “why” that will provide you with the motivation and energy to invest in properties. Without understanding the “WHY” you will never succeed.
You have to understand how real estate compares with other investment avenues such as savings account, shares/stocks, commodities & businesses.
Rate of Return
Shares and stocks are perceived to have higher returns than property and provide hedge against inflation but they pale in comparison to real estate when you take into account the leveraging power of real estate investing and tax advantages of property. It is possible to buy properties by using other people’s money (OPM) with returns that are 20 or 30 or 50 or 100 percent or more per year.
If you wish to understand risk then just check what banks are willing to lend their money for. Are they willing to loan money to buy paintings, antiques, diamonds, mutual funds, CDs, commodities, stocks & businesses? If so to what level of funding? For properties banks will easily lend to 70 or 80 or 90 percent and in some cases to even 100 percent of the value. Banks are the most risk averse institutions and if they are willing to invest in properties up to 100% of value then they consider the investment risk to be extremely low when compared to other investments. You should take your cue from the banks.
Buy Below Market Value
You must have heard the saying that ‘you make money when you buy’ and not at the time of selling. Is it possible to buy stocks or diamond or commodity or gold below value? When you buy $100,000 worth of stock you pay $100,000 in cash.
Investing in real estate after gaining a bit of knowledge, you can buy properties that are 10 or 20 percent or even more below market value. There are many reasons why people sell their properties below value. You can amass great wealth by simply buying property below market value.
Increase Value of Investment
Can you increase the value of your stock or bank deposit by tinkering with it? There is simply no mechanism by which you can increase the value of your stock or any other investment because you do not control them. However you can greatly increase the market value of your investment property by spending a small amount of money on making cosmetic changes or applying for change of use of the property.
No one has ever become rich without applying the power of leverage. Archimedes rightly stated in 200 BC that ‘Give me a lever long enough and a place to stand and I will move the entire earth.’
The financial leverage in the investment world comes from the use of OPM or Other Peoples Money. In real estate investing we buy property with 10% down and yet we control 100% of real estate.
It is extremely difficult to finance other types of investments such as stock and businesses because funding is always an issue. Banks love property because of the low risk and capital appreciation associated with real estate.
Leverage can be used for quick wealth creation. If you know how to use leverage you do not need large amount initial capital to start your property investment portfolio.
We have made a selection of various property markets that are currently ideal for real estate investors and can give you a good 7-10% rental yield. Check on www.ourbestinvestments.org/real-estate/ for more info.
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Source: Why Invest in Real Estate?