As humans, we like things orderly, and it’s in our nature to look at all the important things and rank them. But life is generally more complicated than that, and “the best” is often subjective and subject to any number of different factors. That’s as true for the world of real estate as anywhere else. In short, the best place for investing in real estate is determined by your own situation, your unique ambitions, and your interests. In short, everyone’s best country for real estate investment is different.
That means that you should be asking yourself some important questions when it comes to deciding where you’d like to invest your money. You’ll want to begin with the practical considerations of what resources you have available to you. Finances are a big factor here. The Georgian market, for instance, won’t pay sizable returns on investments that aren’t in the six figures, but less developed countries could see a better return with a smaller investment. Just keep in mind that these regional markets are always shifting, so staying abreast of shifts in the market and assessing your finances is of critical importance.
It’s also important to consider that while less developed countries than the U.S. can result in more generous profits, the onus will be on you to do more of the heavy lifting. That means that you need to consider your education level within the industry and how much time and effort you’re willing to devote towards your investments. These will serve as a major determinant factor in your ideal country for investment. Frontier markets can make you a lot with relatively little cash upfront, but you’ll be working that much harder to get yourself set up.
And while frontier markets may be great in the long term, you’ll want to consider whether yield of appreciation is more important to you. Investors with more money to spare and less need for cash upfront will find the best results in economies like Georgia that are likely to see substantive increases in property value over the course of years or decades. Those just looking for some quick monthly income could look as close as Rust Belt states in The U.S. where they can easily earn between 20 and 40% yield.
It would be insincere to make a list of the best investment markets, both because these change regularly and because they’re highly circumstantial. What works for you is going to be decided by your situation, and that means undertaking a level of personal research to track down the market that meets your needs.
Investing in real estate can be a lucrative experience, but it doesn’t come without its share of risks. Before you invest your savings in any real estate venture, it’s important to do enough research to help you feel confident that the risk is small compared to the potential gains. Even then, employing certain tactics, such as those listed here, can help you determine if you’re taking a good risk.
Follow the 1% Rule
The 1% rule states that you should be able to rent the property out for 1% of the purchase price. Following this rule means that you can expect to generate a positive cash flow, which will make the investment profitable and worthwhile. If you can’t reasonably expect tenants to pay rent equivalent to 1% of the property’s value, you’re better off looking for a more promising investment.
Ignore the Media Hype
There are a number of television shows that push the idea that you’ll make a fortune off every investment. Instead of buying into that, concentrate on turning a profit
. Even a small profit is better than nothing. The best way to do this is to buy the worst property in a good neighborhood and fix it up as cheaply as possible. Go for the less expensive countertops and appliances. After all, these items are easily replaced.
Calculate the Cap Rate
This is an equation investors use to determine the profitability of any investment. It compares the purchase price to the potential income. The cap rate helps you determine if you will be able to earn back your investment within one year of owning the property. If not, this would be considered a bad or high-risk investment.
Look at the Listing
If there’s a noticeable lack of photos and information in the listing, you can expect to do more work on the property. That doesn’t necessarily mean it’s a bad risk, if you’re willing to do the work. In many cases, these types of properties are priced to sell and the seller just wants to get rid of it. This is an opportunity to save money on the purchase price and maximize your investment, although the location of the property should still be considered.
There are many more strategies for identifying the risk of investment properties. As you become more experienced, you’ll develop your own ability to identify good and bad risks. Even when you estimate something to be a good risk, you may still misjudge the opportunity. Mistakes will happen, but perseverance will help you turn those bad investments into profitable learning experiences.
Real estate is one of those industries that has plenty of jargon. Some terms may sound like a totally different language. For regular consumers, it is not critically important to understand all the jargon. For real estate investors, industry jargon matters. Here are some of the terms investors should add to their daily vocabulary.
Net Operating Income
Known as NOI, this term defines how much cash flow investors generate if there is no lien or mortgage on the property. Most investors calculate NOI on an annual basis minus vacancy rates and expenses. Experts say investors should see a 40 to 50 percent NOI when compared to net rental income.
The capitalization rate, also known as the cap rate, is used to determine an investment’s annual return based on the estimated profit generated from a property in one year. To calculate the cap rate, divide the above mentioned NOI by the sales price or the appraised value of a property.
Real Estate Owned
When investors use the term real estate owned (REO), they are referring to a property that is currently owned by a bank. In most cases, the property went into foreclosure, and the bank listed the property for sale at a public auction. When a property does not sell at auction, the bank must maintain possession of the property. REO properties are popular among real estate investors since banks often list these homes for much less than their appraised value.
The goal of any investment property is to make money by renting or by capital appreciation, also known as capital gain. To determine the capital gain of a property, subtract the current value of the investment by the purchase price. If there is a gain in value, investors must pay a capital gains tax. However, the tax is not applicable until the asset is sold
This ratio helps investors determine how much real ownership they have in a property. The ratio, expressed as a percentage, compares the total debt owed on an investment compared to its equity. For example, if an investor buys a property valued at $100,000 and used an $80,000 mortgage plus $20,000 of their own money as a down payment, the investment would have an 80 percent debt-to-equity ratio. Many banks and mortgage lenders prefer a ratio of 80 percent or less.
Now that you have a better understanding of some of the most frequently used jargon in the real estate investment industry, you are ready to tackle your next investment with ease.
Real estate agents have long known that the winter months provide a slight softening in the prices of homes. This is due to a number of factors. One is the simple fact that people, especially those in the more northern regions of the country, do not want to deal with the many hassles of moving when they have potentially sub-zero and blizzard-like conditions to contend with. Another factor is that people who have kids of school age typically will avoid removing their kids from a given school halfway through the year.
But even higher-end properties and condominiums tend to see slight reductions in prices over the winter months. More importantly, real estate prices almost never rise throughout the winter even in years with significant appreciation. The universality of this trend across the entire gamut of real estate offerings means that for those who can deal with the impositions of buying a new home between November and March, doing so may have some nice rewards.
A recent article
went through some of the hard evidence that there is a secular decline in home prices throughout the winter months. The most compelling of these pieces of evidence is an index known as the Case-Schiller Price Index, which tracks general real estate prices throughout the country, independent of the underlying composition of the property types that are selling.This index provides a way to adjust for the seasonal composition of home types, which can vary quite a bit. It shows that, even adjusted for the types of properties that are sold, there is a clear secular decline in home prices throughout the winter months. And this can often amount to a three to five percent savings for homebuyers that are willing to close transactions in this period.
Of particular interest is the fact that the Case-Schiller Price Index almost never increases throughout the winter months. And this is true even in years that have experienced tremendous appreciation in home prices, like 2012. This means that in years where sharp appreciation in home prices is likely, buying between November and March could save buyers more than 10 percent on their purchase price.
This is a good strategy to keep in mind, especially for those who may need to buy using a mortgage. 10 percent differences in the purchase price can make a huge difference in the overall returns on investment.
Buying a luxurious waterfront property will reap the long-term rewards of enjoyment on the property. With that said, people must understand a few key facts to know what they must avoid when buying beautiful waterfront properties. Waterfront properties can turn into a hassle if not bought under the right conditions. From the ongoing battle with rust and mold to being in a potential flood zone, waterfront properties can present a number of challenges. Potential home buyers must do their due diligence to make a solid real estate investment.
#1: Failure to Examine the Bulkheads
The bulkheads require a specialist to inspect the bulkheads because this protects the property from the water. Bulkheads could be logs, large stones or a concrete slab. Ensuring its integrity from the start is a great way to protect a real estate investment.
#2: Not Preparing the Financing
Before an individual goes out to buy a waterfront property, they should first understand how the financing must be there. Waterfront property classifies under a specialty loan, and they will normally cost more than a regular property. Because of this, home buyers shouldn’t wait until the last minute to try to put the financing together because it will cost more.
#3: Not Checking That It Can Withstand Harsh Weather
Waterfront property will normally put up with more abuse than a regular home because it sits on a waterfront. Because of this, the property could face more wear and tear from mother nature. Check to see that the property uses stainless steel, and they have storm shutters for the home.
#4: Not Securing the Right Property Insurance
When an individual owns waterfront property, they must secure the right type of property insurance to protect themselves. Living near the water opens the home to the potential for flooding, so an individual should have the right kind of flood insurance to protect them. Not to mention, they should look carefully at the terms of the flood insurance. Insurance often comes down to someone’s level of risk tolerance, but when someone owns waterfront property, flood insurance is a must.
These are a few things that people should avoid when it comes to buying a waterfront property. These mistakes can cost a homeowner thousands of dollars. Many times, when someone goes to buy a property like this, they feel excited to own it, but they have to keep their wits about them and examine it carefully.
With its sprawling natural wilderness set next to cities booming with high-tech business ventures, West Coast cities are increasingly viewed as a real estate entrepreneur’s dream come true when it comes to outstanding investment opportunities. Here are just four great cities with amazing potential for investors looking for properties that will provide healthy profits and rising value in the years to come.
1. Portland, Oregon
Smaller and more approachable than its sibling cities Seattle and San Francisco, Portland still has a booming real estate market thanks to its quality of life and its setting as the headquarters for industry titans like Nike and Intel. Portland is especially popular for young people, who have moved to the city in droves for its vicinity to natural wonders such as Mt. Hood and the Oregon coast and its numerous bookstores, coffee shops, and fine dining restaurants.
2. San Francisco, California
With its proximity to Silicon Valley and Stanford University, San Francisco is a powerhouse location for the tech world, with tech billionaires driving a market for great real estate opportunities and wonderful standards of living. With its beautiful views and charming hillside apartment buildings, San Francisco should be at the top of any real estate investor’s list for high-value opportunities.
3. Seattle, Washington
The birthplace of Microsoft and Starbucks, Seattle truly has it all for savvy real estate investors: A large professional class eager to move to the city for its stunning natural wonders and high culture, and a real estate market that is set to continue its astounding arc in value as companies like Amazon move to the city for its tech-friendly culture and high standard of living.
4. Napa, California
When most people think of Napa Valley, they think of sprawling vineyards and Michelin-starred restaurants. The high quality of life in Napa, the largest city in the region, is driving a booming real estate market that provides incredible deals for entrepreneurs aiming to rent out properties. The added bonus of owning property one of the most beautiful regions in America is also a big plus for investors!
For these reasons, the West Coast is home to some of the hottest real estate markets in the world. For the right investor, the region presents unbelievable opportunities for growth and personal satisfaction in the foreseeable future. Combining high quality of life and an entrepreneurial spirit that fostered business geniuses like Bill Gates, Howard Schultz, and Steve Jobs, the West Coast truly has it all. For real estate entrepreneurs, that is business done right!