Investing in
real estate is by far the most profitable one amongst all investment options
says real estate expert Jeff Adams. It can be done by buying an apartment, a
condominium, a bungalow or plots of land at strategic places.
These properties can be bought for self occupation/use, for letting out on rent or plainly holding them as investments and selling them when the returns reach the expected levels.
Unlike manufactured goods, or even gold and precious metals, the supply of land has always remained a static phenomenon. As Mark Twain summed it up aptly, “They are not producing it (land) any longer.”
The demand for land and good housing properties has always been increasing, thus spiralling steep rise in property prices far exceeding the inflationary pressures on currencies. This is the prime reason for ordinary investors to put in their hard-earned money, saved out of much sacrifices, into land or housing property for decent returns beyond the wealth eroding power of inflation.
Housing Loans
Land and housing properties cost a lot in comparison to the disposable income earning capacity of the fixed income category of small investors. It is neither feasible nor advisable for them to wait till they accumulate enough resources to invest into real estate, by which time property costs further escalate.
Fortunately, various types of home loans are available to small investors against the mortgage of such property after providing a down payment of about 10% to 20% of the cost of property. These home loans basically fall into following categories:
Fixed Rate Mortgages where the interest rates remain constant. These are also known as conventional mortgage loans and offer a good option in a market scenario when the interest rates are considerably low.
Adjustable Rate Mortgages where interest rates are adjusted throughout the term of the loan. Here, as the name suggests, interest rates vary with the money market.
Hybrid Loans: These are required to be paid back within the stipulated period, but the payments can made either on a regular basis or adjusted to fit into the overall time period. These loans combine the aspects of both the fixed and floating rates of interest.
Transferable Mortgage Loans: These loans can be transferred from the current owner to the new buyer. The new buyer will have to pay the owner the down payment and the installments paid for transfer of the mortgage loan.
FHA Home Loans: These are insured by the Federal Housing Administration of the United States.
VA Home Loans: These are guaranteed by the Veterans’ Administration of the United States and are issued to American veterans or to their spouses.
The Economic Cycles and the Interest Rates
One important factor to be considered while going for home loans to buy real estate property is the changing economic scenario and corresponding changes in the interest rate cycles.
During recessionary periods the industries and the businesses begin to grind slowly, the employment opportunities diminish and unemployment rises, the money supply with the ordinary public becomes scarce, the demand for investments is low and, hence, the interest rates fall correspondingly. Contrary is the case when the economy of a nation is on the upswing.
The real estate market is most affected during recessionary times. The defaults on mortgages become common, foreclosures or confiscation of the property by the lenders for defaulted loans, increase. The recessionary periods, however, do not last too long.
But, because of an overall feeling of doom, an ordinary investor feels clueless when the good times will return. This is the time when hedge funds swoop in like raven. Therefore, a small investor needs to exercise daring combined with shrewdness and caution at such times.
Hedge Funds
These funds possess massive capital and their motive to enter real estate market is to reap quick profits. They have the technology and information to sniff opportunities. Once identified a prospective market, they strike with their full financial muscle and buy properties en-bloc, even at premium prices, edging out all other small players.
Their game is to sell it off with equal haste when the demand picks up, pocket hefty profits and move on to other pastures. Their limitations do not allow them to block money for long on dud investments.
Hedge funds constitute the money pooled in by high net worth real estate investors, expressly for making quick profits. Unlike the mutual funds, who deal with public money, the hedge fund managers are not much restricted in their investment decisions. The federal regulations, however, have imposed certain lower limits on participating investors so that small investors might not get swept away by the greed and thus, sometimes, get totally wiped out in this risky squabble of big boys.
The arrival of hedge funds is a sure sign of the onset of spring after a long winter. The shrewd small investor can circumvent the game by riding on the back of these hedge fund sharks. The small investor need not get discouraged by sudden upshot in prices after a long period of lull. The investor can buy any available piece of good property by paying a small premium price.
The increasing trend in prices is sure to add more worth to the property’s value. The small investor can also go for adjoining pieces of good property and hold them a little longer than the inherent limitations of hedge funds in order to make good money.
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These properties can be bought for self occupation/use, for letting out on rent or plainly holding them as investments and selling them when the returns reach the expected levels.
Unlike manufactured goods, or even gold and precious metals, the supply of land has always remained a static phenomenon. As Mark Twain summed it up aptly, “They are not producing it (land) any longer.”
The demand for land and good housing properties has always been increasing, thus spiralling steep rise in property prices far exceeding the inflationary pressures on currencies. This is the prime reason for ordinary investors to put in their hard-earned money, saved out of much sacrifices, into land or housing property for decent returns beyond the wealth eroding power of inflation.
Housing Loans
Land and housing properties cost a lot in comparison to the disposable income earning capacity of the fixed income category of small investors. It is neither feasible nor advisable for them to wait till they accumulate enough resources to invest into real estate, by which time property costs further escalate.
Fortunately, various types of home loans are available to small investors against the mortgage of such property after providing a down payment of about 10% to 20% of the cost of property. These home loans basically fall into following categories:
Fixed Rate Mortgages where the interest rates remain constant. These are also known as conventional mortgage loans and offer a good option in a market scenario when the interest rates are considerably low.
Adjustable Rate Mortgages where interest rates are adjusted throughout the term of the loan. Here, as the name suggests, interest rates vary with the money market.
Hybrid Loans: These are required to be paid back within the stipulated period, but the payments can made either on a regular basis or adjusted to fit into the overall time period. These loans combine the aspects of both the fixed and floating rates of interest.
Transferable Mortgage Loans: These loans can be transferred from the current owner to the new buyer. The new buyer will have to pay the owner the down payment and the installments paid for transfer of the mortgage loan.
FHA Home Loans: These are insured by the Federal Housing Administration of the United States.
VA Home Loans: These are guaranteed by the Veterans’ Administration of the United States and are issued to American veterans or to their spouses.
The Economic Cycles and the Interest Rates
One important factor to be considered while going for home loans to buy real estate property is the changing economic scenario and corresponding changes in the interest rate cycles.
During recessionary periods the industries and the businesses begin to grind slowly, the employment opportunities diminish and unemployment rises, the money supply with the ordinary public becomes scarce, the demand for investments is low and, hence, the interest rates fall correspondingly. Contrary is the case when the economy of a nation is on the upswing.
The real estate market is most affected during recessionary times. The defaults on mortgages become common, foreclosures or confiscation of the property by the lenders for defaulted loans, increase. The recessionary periods, however, do not last too long.
But, because of an overall feeling of doom, an ordinary investor feels clueless when the good times will return. This is the time when hedge funds swoop in like raven. Therefore, a small investor needs to exercise daring combined with shrewdness and caution at such times.
Hedge Funds
These funds possess massive capital and their motive to enter real estate market is to reap quick profits. They have the technology and information to sniff opportunities. Once identified a prospective market, they strike with their full financial muscle and buy properties en-bloc, even at premium prices, edging out all other small players.
Their game is to sell it off with equal haste when the demand picks up, pocket hefty profits and move on to other pastures. Their limitations do not allow them to block money for long on dud investments.
Hedge funds constitute the money pooled in by high net worth real estate investors, expressly for making quick profits. Unlike the mutual funds, who deal with public money, the hedge fund managers are not much restricted in their investment decisions. The federal regulations, however, have imposed certain lower limits on participating investors so that small investors might not get swept away by the greed and thus, sometimes, get totally wiped out in this risky squabble of big boys.
The arrival of hedge funds is a sure sign of the onset of spring after a long winter. The shrewd small investor can circumvent the game by riding on the back of these hedge fund sharks. The small investor need not get discouraged by sudden upshot in prices after a long period of lull. The investor can buy any available piece of good property by paying a small premium price.
The increasing trend in prices is sure to add more worth to the property’s value. The small investor can also go for adjoining pieces of good property and hold them a little longer than the inherent limitations of hedge funds in order to make good money.
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