Stilettos and Real Estate
Posted On Apr 30, 2016
So, by now our stilettos have left their marks in the investment world- we’ve covered stocks, bonds, and now real estate as an investment. Investment real estate is real estate that generates income or is otherwise intended for investment purposes rather than as a primary residence; aka rental property.
Buying rental property is the oldest and most basic way to invest in real estate, but there are many more options than just driving around from property to property with your real estate agent.
Back to the Basics
Buying property to rent out to a tenant comes with potential profit, but at the price of ‘landlord duties.’ If the AC stops working in the middle of the night, guess who’s getting a phone call? Even so, owning property can bring in pretty sweet income- the tenant’s monthly charges cover the rent, mortgage, and other costs. A landlord may charge more in order to produce a monthly profit, but typically landlords only charge to cover the latter expenses until the mortgage has been paid at which time the rent becomes profit.
Furthermore, the property may also have appreciated in value over the course of the mortgage, leaving the landlord with a more valuable asset. Do your research to find the right property- pick an area where vacancy rates are low and choose a place that people will want to rent.
Real Estate Investment Groups
This is a viable option for those who want to own rental property, but prefer not to receive midnight calls regarding a broken AC unit. A company buys or builds a group of apartments and lets investors buy them through the company. The company will manage the units- maintenance, advertise vacant units, and interview potential tenants- for exchange of part of the rent. This is the “have your cake and eat it too” mentality at its finest.
Real Estate Trading
There are two types of real estate traders. Exhibit A showcases pure property flippers; these are the types who will not put any money into a house for improvements. The property must have intrinsic value to turn a profit without alterations.
In exhibit B, we see the type of flippers who buy reasonably priced properties and add value by renovating them. This can be a longer-term investment depending on the extent of the renovations.
A real estate investment trust (REIT) is created when a corporation (or trust) uses investors’ money to allow them into non-residential investments such as malls or office buildings.
Just like any other stock, REITs are bought and sold on the major exchanges. In order for a corporation to keep its status as an REIT, it must pay out 90% of its taxable profits in the form of dividends. Such, allows the REIT to 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.
Investing in real estate is so alluring because there are many types of mortgages that require as little as 5% down, hence, enabling the owner to control the property and its equity by paying only a fraction of the value.
However, as with any investment, there is much potential with real estate as long as you make careful choices and weigh out the costs and benefits of your actions.