Investing in Real Estate has been known as bringing in a great return on your money. Many people have monthly income coming in from owning then renting out the real estate. If you have several homes that you rent out every month you have quite a bit of money coming in every month. Not only will you be getting a monthly income from the rental monies but also the real estate is hopefully rising in values. You can buy a mobile home and land in some areas for under $25,000.
There are ways that you can start out owning real estate even on a small budget. It’s something that many people don’t even consider. But it’s mobile homes. Mobile homes are inexpensive and many people live in them as inexpensive homes. They are now built on permanent foundation and if they are on land as a permanent home the values really aren’t decreasing as quickly as they did at one time. Sometimes you can buy a fixer-upper mobile home for next to nothing, as the young couple had only purchased it to live in while saving for a home when they buy their home they will sell the home just to get rid of it. This can be a great savings for you. You can many times buy the homes already set up on land in neighborhoods or mobile home parks for less than it’s worth.
Some mobile homes that you buy will need some work, which can be as easy as laying tile floor, or just painting and putting down carpet. This is basically cosmetic work that won’t cost allot of money or take much time but can be a great payoff for you. Since you don’t have allot of money tied up in the real estate you can use the money that you saved to fix it up and resell it or just rent it out.
It is fairly easy to find renters to rent your property. This will give you the monthly income every month that you won’t have to turn around and pay a huge mortgage note with that money. Since you have picked up the land and home for very little money the monthly income will be going to you. Rent for mobile homes are usually a little less than an apartment and way less than a home in the area. So it’s easy to find potential renters quickly.
Finding financing for homes that you don’t live in can be difficult especially for mobile homes, so you may want see if the sellers would consider owner financing if you don’t have the cash to pay for it. Buyers may consider this option to move on with their lives and sell quickly. If you have cash that you can use to pay outright you have a better chance to get a better price.
While buying and investing in mobile homes may not be for everyone, it can bring you a great income monthly for very little cash and get you started in the real estate market.
For those investors who like the idea of the possible large rewards available in real estate investment, a REIT offers a way to get in on the action without having to deal with many of the headaches. Simply investing in the REIT allows the investor to avoid some of the risks inherent in real estate investment, such as tenants, taxes, foreclosures, and legal liability.
Real Estate Investment Trusts are simply corporations, publicly or privately held, who operate, own or finance income producing real estate. As a corporation, REITs are required to return 90% of taxable income to its investors.
Benefits of Real Estate Investment Trusts (REIT)
As far as investors go, REITs offer a very hands-off approach to real estate investment. For all intents and purposes, they are comparable to a standard mutual fund. Investments are pooled and the REIT purchases and operates income-producing investment properties, returning the bulk of the profits back to the investors. The REIT assumes all risk associated with owning property: Foreclosure, tax issues, insurance, tenants, legal liability and so on. The investor is only on the hook for the money put in.
Typically, Real Estate Investment Trusts return between 6% and 7% on money invested, due in large part to the real estate investment market’s stability and tendency to appreciate. As with any investment, nothing is guaranteed, and much lower returns are possible. On the other hand, some have returned as much as 15% over a three year period. One of the downsides is that dividends paid from REITs are usually fully taxable as income.
Not everyone believes in the stability and earning potential of REITs, so all investors are well advised to adequately research any investment decision and seek professional advice where necessary. Dave Ramsey, for example, frowns on Real Estate Investment Trusts and advises that one’s portfolio contains no more than 10% REIT funds. His advice would be to put that same money in a strong growth mutual fund.
Portfolio Diversification – REITs Should Be Just One Egg in Your Basket
As any financial planner or advisor will say, all portfolios should be well balanced and diversified. While investing in a Real Estate Investment Trust may be a good idea, always make sure there are other investments to fall back on should the REIT fail. Remember- most investments aren’t guaranteed (notable examples being government bonds and CDs). A balanced portfolio would include stocks, bonds, mutual funds and REITs and/or property investment.
Sooner or later investors will want to dispose of one or more properties in their portfolios. Market conditions and changing personal needs may play into the decision to get rid of a property. Nonetheless, individuals should be guided primarily by their investment plans to determine which properties to dispose of and when and how to do so. This will ensure that the disposal is the right move at the right time.
Disposal of Real Estate: Good and Bad Reasons
There are many good reasons for wanting to get rid of property, such as:
- The property was a fixer-upper that has been rehabbed and made ready for sale.
- The owner of rental property has tired of being a landlord.
- The sale will provide funds to buy other property or invest in other types of assets.
Other valid reasons that may prompt a sale are a divorce judgment calls for the division of a couple’s assets, the desire to finance a luxury such as a first-class vacation or a retirement home, or the termination of the partnership that owned the property.
There are also bad reasons to sell, including that the owner has received an unexpected offer to buy one of the properties. Obviously well-kept properties in acceptable locations will always attract buyers. This does not mean that the owner has to entertain unsolicited bids from buyers. The property is likely a good income producer for the owner and selling it too early may defeat the goals of the investment plan.
Another bad reason to sell is that a property has been owned for so long that it has used up its depreciation under the U.S. tax laws. Again, if the property still offers decent cash flow and is in good condition, it may not be the right time to sell. Investors should never over-rely on the benefits of depreciation when they select a property to purchase; similarly, the existence or lack of depreciation should not control an investor’s decision of whether to sell.
Yet another bad reason to sell is that a property has become rundown and unattractive. Serious investors never allow their assets to lose value through neglect because they know that real estate investment is a business.
Keep Return on Investment in Focus
When owners act impulsively out of a need for instant gratification or fear that market conditions will deteriorate, they risk undervaluing property that they improved and maintained and – if it is rental property – into which they installed good tenants. An impulse- or fear-driven sale also may result in the payment of capital gains taxes that could have been deferred or even avoided. All of this stands in sharp conflict with the ROI goals articulated in a well-designed investment plan.
Another problem is that investors may not have realistic expectations about what their properties are worth. For example, Nancy Newbie from the Northeast may need $350,000 to finance a retirement condo in a sunny climate and the relocation expenses involved, so she puts two of her properties up for sale for a total of $400,000. If the market conditions where the properties are located are such that Nancy will net less than what she wants or expects from the sales, she may choose to dig in her heels and to wait until she gets the price she wants or she may have to postpone or revise her relocation plans. In the meantime, she will have wasted a considerable amount of time, all because she neglected to research her market.
A tax professional or financial advisor can guide the investor through the murky waters of indecision over whether to dispose of property in a portfolio. These pros can also advise the investor whether the exit strategies set out in the investment plan are the best means for reaching the investor’s financial goals.