Vicki Irvin- Maryland Real Estate Investing-Vicki Irvin
1 – Real Estate Investing
Often people began investing in realty not to become the neighborhood millionaire (although that happens more frequently than most people realize) but instead to pay for their children’s college education, to lead a richer lifestyle, or to establish a nice nest egg for retirement.
TIP: Most owners have watched the value of their homes skyrocket, and dream of their profits. The problem with that, of course, is that you always need a place to live, so if you sell and take your profits, you still need another (usually more expensive) home to buy and live in. As a result, some of these owners have realized that the way to succeed is to buy second, third, or even more homes. That way they can treat the other properties as true investments and cash in on the profits.
Why Is Real Estate a Hot Investment?
While 5 to 7 percent a year price appreciation has been common, price appreciation in some areas such as parts of Washington state, California, Nevada, Texas, New York, and New England climbed at meteoric rates sometimes 12 to 15 percent or more annually. One area, Sacramento, California, recently saw a 22 percent price increase in housing in just six months!
Of course, real estate hasn’t always gone up. Between 1990 and 1997 most parts of the country experienced a real estate recession with prices falling as much as 30 percent over the entire period. However, that was the first major recession in real estate since the end of World War II, after 55 years of generally steady growth. And the prospect for another long period of real estate growth from now forward seems excellent.
Why Doesn’t Real Estate Require a Lot of Money to Get Into?
If you were making 6 to 7 percent on your investment, you might consider it pretty good money. If you were making 20 percent, you’d probably be very happy. But, what if you were making 50 percent or more? How would you feel then?
You’d feel like those who invest in real estate.
It’s all possible because of leverage. If you haven’t seen how this works before, watch closely.
The amount you invest in a property is almost always leveraged. That means that you only have to put up a small amount of the purchase price, sometimes as little as only 3 percent down!
The result is that when prices go up, your percentage return is huge.
So, if you put 3 percent or $3,000 down on a $100,000 property and it goes up 3 percent in value, you’ve doubled your money: you’ve made 100 percent! (A 3 percent increase moves the price up $3,000.)
Of course, in real life it’s not quite that simple. There are the costs of purchase and, ultimately, the costs of sale. As a result, you really get the big return in the second year of ownership. Some of the first year’s appreciation goes toward offsetting transaction costs.
It’s all possible because in recent years lenders, facing stiff competition for mortgage dollars, have reduced the amount of down payment required to purchase an investment property. In the past die minimum down payment was as high as 30 percent of die purchase price, and certainly no less than 20 percent. However, in recent years lenders have lowered the rail until now it’s common to buy an investment house with only 10 percent down. (If you buy the house with plans to live in it, your down payment can be as low as the 3 percent noted above.)
Even if you put 10 percent down on a property and it appreciates 10 percent, you’ve still made 100 percent on your investment! But if it goes up 20 percent, your return on investment is 200 percent!
So, there you have itâ€”a road map for success in real estate in the twenty-first century. Most people already have most of what they need to succeed. In many cases all that’s required is that you learn and then apply yourself. Of course, you also do need a good real estate market. But the United States is happy to supply that for you.