We all know that land and property are wise investments. The main catch to real estate investments is this: it takes money to make money; you usually cannot buy a piece of real estate without a significant amount of money on hand, much less invest in enough real estate to become a multi-millionaire. But many possibilities are opening up to the investor with less initial capital.
The advent of the “no down payment” option for real estate purchase has made it possible for many people, who would otherwise be financially unable, to purchase their own homes and even to invest in other real estate ventures. The interest rate on these purchases will probably be significantly higher than if you had come up with a 20 percent down payment, but purchasing a home, even at a high rate, is always better than paying rent. Rent builds no equity, while house payments, even at the highest of rates, do.
The benefits of having renters
If you’re like most of us, your real estate investments portfolio will probably start off in a form you may not have even considered an investment: your own home. If you want more immediate investment rewards, you might consider purchasing a duplex and renting the other half out. Even if rent is not enough to cover the costs of house payments and property taxes (and it won’t be), look at it this way: your renter is essentially paying for a portion of your property while you are the one who gets to keep it.
If you’re a smart spender, your savings will grow through the years, and with your house payments made smaller by the rent you receive, you may shortly have enough money to invest in a second rental property (or non-rental, as you prefer). The hottest rental areas are near colleges, shopping centers, and bus stops, so take this into consideration when you’re making your real estate investments.
Making the most of appreciation
Obviously, you want the value of any property you purchase, no matter what you’re using it for, to go up during the course of your ownership. And most properties do. But to make the most of your real estate investments, you’ll need to find a property that will go up in value more than the rest of the market. Although in fact you never can predict the future with certainty, there are several factors that affect appreciation which will enable you to decrease the risk associated with your investment.
- Area growth: If an area has been growing rapidly with no signs of slowing down, it’s likely the buildings in the area will appreciate rapidly.
- Past appreciation: Similarly, if the properties in an area have quickly and steadily appreciated over past years, they will probably continue to do so.
- Type of location Urban areas tend to have reached maximum growth, and, therefore, often depreciate or remain the same in value. Suburban properties, on the other hand, tend to appreciate, especially in relatively newly-developed suburban areas. Suburban properties are the safest investments. A property in the countryside is a bit of a risk; it may remain the same in value for decades. On the other hand, if areas near it are developed, it may shoot up in value suddenly.
If you are careful and conservative, real estate investments are more profitable, safer and more predictable than more traditional investments such as stocks and bonds. Keep your credit record clean and save what you can, and you’ll be on the right path to accumulate future real estate wealth.
By Riannon Cutler