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How to Invest in Real Estate Without the Headaches

This piece will examine many of the common pitfalls that investors in physical properties deal with, and take a closer look at the alternative offered by real estate investment trusts (REITs) and real estate limited partnerships (LPs). What investors get wrong: Valuation and aggravation The first and most obvious evaluation of whether a real estate investment will be successful involves the economic relationship between the purchase price of a property and its capacity as a cash generator. Hassles in negotiating with tenants and the time commitment and cost involved with property management should also be primary considerations. Real estate securities as a viable alternative Real estate can be — and historically has been — an asset class capable of delivering more than satisfactory returns. Enter the real estate security, which can be simplified into two basic forms: (1) real estate investment trusts and (2) real estate limited partnerships. Publicly traded REITs are listed on the public markets and are freely accessible to any investor interested in gaining exposure to the sector. Real estate limited partnerships, or “RELPs,” also provide investors with passive exposure to the commercial real estate sector. Limited partnerships, because of their pass-through tax status, are also incentivized to distribute most, if not all of, their earnings to investors. These vehicles are true proxies for real estate, with real properties, real rents and real appreciation to boot. Investors should consult their financial adviser on the strategy best for them.

Here are the cities where the most people live alone

In any U.S. city, living arrangements run the gamut from friends and strangers living as roommates to domestic partnerships to single-parent households to the traditional nuclear families. More than 1 in every 4 households – 27.9 percent – are made up of a single individual. According to estimates from the U.S. Census Bureau, there are 21 metropolitan areas where more than one in every three homes are occupied by individuals who live alone. While these cities do not necessarily share a single defining quality, there are some common characteristics that may help explain why residents are more likely to live on their own in these places. Living alone means footing the bill for utilities and rent – or upkeep and mortgage. For that reason, it is not financially prudent, or even possible, for many. In cities with a lower than average cost of living, fewer residents may need to rely on a roommate in order to afford housing. More: Do you live in an ideal community? Nationwide, 48.1 percent of the 15 and older population are currently married. In the majority of cities with the largest share of people living alone, a smaller than average share of the population is married.

Is a Rental Property the Best Way to Grow Your Wealth?

Owning a rental property in addition to your primary residence can be a way for you to build wealth, especially if you may be averse to investing in the stock market. With a rental property, someone else pays your mortgage, and over time your equity grows. So, before you decide to invest in a rental property, consider calculating the return on your investment to see if investing in a rental property is really the deal you thought. How to Calculate the Return on Investment of a Rental Property Like any investment, you need to understand the expected return on investment (ROI). Before you can calculate the true ROI of a rental property, you have to factor in all the costs associated with holding that property, not just the purchase amount. And remember, property taxes don’t typically stay the same each year. In addition, this calculation should be done for every year you anticipate owning the property, as your return will change over time. Conclusion Rental properties can generate income, but the return on investment doesn’t typically happen right away. As with any investment, rental properties should be viewed as a long-term investment, not an instant cash cow. Paul Sydlansky, founder of Lake Road Advisors LLC, has worked in the financial services industry for over 18 years.

Cash-out refis haven’t been this prevalent since the financial crisis

The volume of cash-out refinance loans hasn’t been this high since 2008, but experts say when put into context, there’s no cause for alarm. A blog by Washington, D.C. think tank the Urban Institute said that while on its face the growing share does seem worrisome, there is no cause for concern when you break it down. For one, home price appreciation and rising interest rates play a major role. Home values have been rising an average of 6 to 8%, giving homeowners a major incentive to tap that growing source of wealth. Second, the percentage of refinances in the overall number of mortgage transactions is the lowest it has been in years. “Refinance loans make up such a small share of total loan production – currently below 30% for Freddie Mac – so the cash-out refinance share of all loans is still within a reasonable range and below the dangerous levels of the crisis years,” the authors stated. Also, other forms of equity extraction – including HELOCs and HECMs – are not experiencing major borrower uptake. Finally, borrowers are taking less equity than before when they cash out, thanks in part to regulations limiting the loan-to-value ratio for cash-out refis. “While cash-outs make up the highest share of refinances they have since 2008, this is no reason for alarm,” the authors write. “In an environment of home price appreciation, people commonly tap into their home equity.”

How To Prepare For The Next Real Estate Downturn

If house B ends up being better (as in, you bought it after the market crashed and paid less), your opportunity cost would be the money you lost that you could have made if you’d waited for house B. When you BRRRR correctly, you can end up buying an investment property with zero money down. When you buy a house traditionally, you put a hefty down payment down, then include money for closing costs and the rehab. In this case, if the market crashes, you don’t have that 50k to invest in the down market, so your opportunity cost is high. This is the reasoning behind the “fear of missing out” that keeps investors from getting started investing in real estate. If you can buy a property and recover the capital you used to buy it, what stops you from buying the next one too? In a hypothetical BRRRR deal, you would buy a fixer upper property for 60k that needs 40k of rehab work. This means you’ll have all that money to put into the next house when the market crashes. If you do this effectively, you can pull out even more money than you put in (by buying great deals and rehabbing prudently), growing your capital and the ability to invest in future properties. How do I know which market to invest in?

Stock Market vs Real Estate: Investing in Stocks or Housing Market?

Just before the crisis of 2008 hit the market, the housing prices surged as many construction companies were entering debt in order to build homes at high prices that no one actually bought, thus causing these investors to go into foreclosure. After the price spike in the housing market, there came price drops, indicating that the real estate market is set to crash once again. However, stock market doesn’t seem far off from the crash either, as the majority of financial analysts can agree that we are looking at another recession or at least economic depression. Stock Market or Investing in Real Estate? Which One Makes a More Profitable Action? In the last 27 years, based on the information available on Yahoo Finance, S&P 500 index and the Federal Housing Finance Agency, the stock market had showed better performance in oppose to the real estate market, however, these are entirely different investments by nature. Stock market is definitely more volatile, and is definitely bringing higher returns than investing in real estate, but buying a house might stand as one of the biggest moves a person can make in their life. Between 1991 and 2016, stock prices have definitely outperformed housing prices, growing at a far higher rate than real estate price and sales, which is why economists believe that the stock market is more likely to suffer a great deal in the supposedly upcoming recession. Although the analysts can agree that the housing market is looking at a crash as well, many of them claim that casualties won’t be as grave as it would be the case with the stock market. Real estate for instance can be difficult to cash in on, while it also calls for maintenance costs alongside paying taxes, while stocks are representing a piece of a company that you are investing in and which tends to grow or drop in accordance with various factors such as market trends, company’s performance and economy.

Should Real Estate Investors Be Worried About U.S. Stock Market Volatility?

The downturn rippled through world equity markets. Should real estate investors be worried? Yes, says Richard Barkham, Global Chief Economist & Head of Americas Research of CBRE, but only if policy makers overreact. Black Monday raised fear that the global economy was slipping into another serious recession, like that of 1979 to 1982. Interest rates were lowered and government spending was increased. Since the global economy remained in relatively good shape, the stimulus stoked inflation and fueled a property boom, particularly in the U.K. Real estate did well for a couple of years but crashed in 1989, not as a direct result of Black Monday but of the mistaken policy response, CBRE explains. The bursting of the dot-com bubble in the early 2000s was spread over three years, but the DJIA lost 27% of its value between January and October of 2002 alone. Interest rates were lowered, the U.S. moved to a zero-interest rate policy and government spending increased. Far more damaging was the housing market boom, ignited by aggressive interest rate cuts, which fell apart in 2007, continued CBRE. Bottom line: The global economy is in good shape and real estate investors should not fear a real estate crash reports CBRE.

Five Reasons Why Your Real Estate Investments Aren’t Earning You Money

His responses were stable cash flow with some potential for appreciation, long-term time horizon of 5 to 10 years, not tolerant of high-risk investments and his real estate experience was limited to the purchase of his single-family residence. This means that he lost out on the last five years of cash flow and appreciation, and his money suffered from five years of creeping inflation — a poor outcome. Plenty of people desire to be in real estate, but consistently fail to invest successfully. No Clear Objectives The primary reason investors I meet do not make any money in real estate is because they have not taken the time to establish specific, clear objectives. Most investors have answers for the questions I asked our representative investor above and believe that is sufficient for moving forward. Lack Of Time A real estate investment must be viewed as a business. As with any business you have clients (tenants), vendors (property managers, contractors, utility providers) and possibly employees. We constantly acquire properties for our investment funds, and a key gating factor when deciding whether to pursue a property is if we have a quality property management firm in place to run it. Inability To See The Big Picture When buying properties across the U.S. and in many different markets, there are two critical factors we look for before considering an investment: net population increase and diverse economic base. How can you tell if you are buying the right property?

Should you invest in real estate or stocks?

Share this article In the long run, stocks have a higher return on investment than real estate. For that reason, here we’ll first use the averages for the past 10 years. The best source of primary price data for the residential real estate market is the Case-Shiller Home Price Index, a database begun by Nobel economist Robert Shiller and his associate Karel Case. If you’re looking it up online, the formal name is now “The S&P CoreLogic Case-Shiller U.S. National Home Price Index.” I’m using the index for the residential market because most individual real estate investors invest in rental housing. A return on investment calculator shows that the average annual ROI for the 10-year period is only 1.39 percent. Over a 30-year period, a time frame often chosen by retirement-minded investors, the stock market’s annual return of more than 8 percent on a $300,000 investment produces a retirement portfolio worth about $3,450,000. The residential market’s 6 percent return on the same investment produces a 30-year return of $1,720,000. But you might also consider investing in both. Index investing allows you invest in real estate without the labor and risk of investment in individual rental properties. Over the past 10 years San Francisco residential real estate — and therefore its price index — have outperformed all other regional markets.

Why blockchain will drive the real-estate revolution

Advances in blockchain innovation mean that the real estate sector no longer needs to rely on dusty documents and traditional sales processes, because property titles, insurance, ownership transfer and escrow processes are all moving onto the blockchain. While buying a property will not be as quick and easy as buying a book from Amazon, for now at least, the world of real estate from home buying to property investment is about to be transformed. Why change traditional house buying? With its many third parties, time delays and lack of transparency, the legalities involved in buying property will be drastically simplified with blockchain. For example, in the verification of property titles; a title record for a property could be used on the blockchain in the form of a smart contract. Smart contracts do not require a trusted third party and, when a property is bought and sold, the details are encrypted and added to the record. This is a radical new approach which is gaining momentum — being able to own units or tokens in residential real estate – and it opens up the market to people who would otherwise not be able to invest in this sector. But where does all this change leave the real-estate agents? Undoubtedly, their roles will change, but there is no sign of them disappearing any time soon. Blockchain not only will improve the current processes of buying and selling property, but it will also revolutionize our traditional attitudes towards real estate.

TRENDING

Is housing becoming a buyer’s market?

Home sellers have begun cutting back their listing price, especially at the high end of the housing market, leaving open the possibility that it is now beginning to shift to a buyer’s market. From the beginning of this year, the share of listings with a price cut increased by 1.2 percentage points, the greatest January-to-June increase ever reported and more than double the increase from the same period last year, according to the report. For example, in San Diego, 20% of listings had a price cut in June, up from 12% last year. Seattle also saw an increase in its number of homes with a price cut to 12% of total listings in June. Zillow’s data shows home values rose 8.3% over the past year to $217,300, but the company forecasts that growth will slow to about 6.6% over the next year. The data shows that for homes priced in the top one-third of all homes listed for sale, those with a price cut increased 0.9% to 16.2% annually in June. But over that same time, the share homes with a price cut in the bottom one-third of all those listed for sale actually fell 0.1 percentage points annually to 11.2% in June. The chart below shows in what price markets the cuts are most common and what share in each market saw a price cut in June. “The housing market has tilted sharply in favor of sellers over the past two years, but there are very early signs that the winds may be starting to shift ever-so-slightly,” Zillow said in its report. “It’s far too soon to call this a buyer’s market, but these data indicate the frenetic pace of the housing market over the past few years may be starting to return toward a more normal trend.” What’s more, it seems housing inventory is finally starting to bring some relief to homebuyers at the lower end of the market, providing more affordable housing inventory for first-time buyers.