Inves&ng in Real Estate ____________________________________________________
Real estate investment is lucra&ve. It is an investment in an illiquid asset and the risks are high. You need to make some smart choices upfront when buying investment property.
Real estate investment sta&s&cs •
U.S.A. was ranked in the number 1 posi&on with global commercial real estate investors in 2012.
• 12% of all adult Americans are actually real estate investors. • 3% of the U.S. popula&ons of adults are ac&ve real estate investors. • 3.5 million people will buy 5 or more houses in a year. • 65% of the 3.5 million people will con&nue to invest in real estate. • $ 9.2 billion is spent on renova&ng real estate.
Ways to invest in real estate
Oﬃce Property: Inves&ng in oﬃce property is the “ﬂagship investment” for many real estate owners. The demand is directly propor&onal to the increase in white collar jobs. Risk: Oﬃce buildings have high opera&ng costs, so losing a tenant can have a substan&al impact on the returns for the property.
Retail Property: Retail proper&es range from large enclosed shopping malls to single tenant buildings in pedestrian zones. Loca&on, visibility, popula&on density, popula&on growth, and rel-‐ a&ve income levels play a crucial role in the demand for retail spaces. Risk: Inves&ng in retail property has a lower return than oﬃce buildings. The subsequent risk is
Industrial Property: Includes buildings used for warehousing, manufacturing, research, and de-‐ velopment. Lower opera&ng cost than above two counterparts. Risk: Risk is lower. Losing a tenant can have great impact.
Mul&-‐family residen&al property: Most stable return. Loss of a single tenant has a minimal im-‐ pact.
Risk: An increase in building opera&ng costs has to be borne by the property owner for the dura&on of the lease.
Tips for inves&ng in real estate
Real estate investment is a business: Treat it as such. Start by developing a good business plan, detailing the nuances of star&ng and running your business, with realis&c goals over &me frames.
Check your ﬁnancing ability: Determine your ability to ﬁnance investment property. Make sure that your total debt-‐to-‐monthly-‐income ra&o is low.
Find a good bank or mortgage broker: A good bank or mortgage broker is needed if you plan to ﬁnance your investment. Advice from real estate agents or other investors are good sources of informa&on.
Look for the best area to look for proper&es: Don’t make the mistake of limi&ng the search to areas close to home: expand it further where you might get a beber bargain.
Talk with other investors about local real estate: Join a real estate club in your area. They are great places to network with other investors, lenders, and repair service providers. You can oden pick up helpful advice about your local market from other club members. Consider joining an online inves&ng forum if there isn’t one for real estate.
Find a good realtor to help you locate proper&es: Choose a realtor who has sold a large number of investment proper&es, and also understands concepts such as return on investment (ROI), net opera&ng income (NOI), and debt service.
Sources: hbp://toddmillertv.com/investors/real-‐estate-‐investor-‐sta&s&cs-‐episode-‐263/ hbp://www.landlordsta&on.com/blog/american-‐real-‐estate-‐inves&ng-‐sta&s&cs-‐and-‐trends/ hbp://www.investopedia.com/university/real_estate/real_estate2.asp hbp://ﬁnance.yahoo.com/news/10-‐&ps-‐real-‐estate-‐investors-‐165651158.html hbp://www.forbes.com/sites/zillow/2013/05/21/three-‐things-‐that-‐make-‐a-‐great-‐real-‐estate-‐invest-‐ ment/
by Tyson Rhame