When it comes to your hard-earned money, it’s only natural to think twice before making any sort of investment. Remember the first time the world went overboard with investing money into the stock market? People aren’t as impulsive these days. Even buying a stock share of Microsoft requires a little bit of market research. Real estate investment, on the other hand, isn’t a type of investment that shows returns overnight. In actuality, no industry can truly offer any guaranteed return because everything depreciates over time.
There are some strong opinions about responsible investing. In our experience, these are often rooted in an incomplete understanding of the different approaches investors use to invest responsibly. Remember what Jim Collins said – “If you buy a lot more than your investment will yield after 1 year, don’t panic”. Unfortunately, that rule applies when money is invested and there has been less reinvestment over time for reasons such as financial stability or even growth rates at home or abroad.
Some key areas you should consider before investing in Real Estate.
- Inflation rate and market growth
- Builder’s experience
- Time value of money
- A clear goal
- Market research
Relationship Between Home Prices & Inflation
Well, we know about interest rates, but what about inflation? Is there a correlation between inflation and home prices? In the real estate economy, there are a lot more factors that affect house prices and the correlation is not as prominent as it is in our example. One of the other major factors causing house prices to increase is the interest rate. Historically, banks used many different methods to raise mortgage loan amounts but they all brought on negative cash flow from their loans. When inflation increases because of higher taxes paid by businesses, or housing prices rise in regards to rent or property value, these same funds can also be affected negatively.
Experience guides us. Even when we’ve made a solid commitment to making smart investment choices based on financial knowledge, market data, and analysis, some properties might never be bought or sold. It can actually take years in many cases!
Here’s what happens…
Your broker will say: “Well done bro. You just put $100 into it.” How often do they give this compliment during discussions about how much we should invest because our home prices would improve if we did something like pay an investor with us instead? Much of the misinformation only creates fear and leads people to search for homes that don’t fully reflect their needs and requirements. Truth is, some essential aspects of real estate investments require a good understanding of the market. The key element is the creation of lots of value and if something doesn’t exist when you buy it, how can you expect to find out? Hmmm…So now we’re back to reality for this installment. I’m sure everyone reading today knows exactly who RFPs were made with many years ago; sometimes developers take those steps too early which leads things down right. Investing responsibly means lower returns on risk – you will be worse off in retirement than when you started, or sooner if money was better spent.
Real estate property always has value and should appreciate over time, allowing you to sell it at a higher price later on. In fact, most properties tend not to rise above the line of appreciation as prices inevitably fall behind this point in their decline trajectory. Investing your money requires a lot of research before making an informed decision. Keep in mind that if you are doing the research and there is no other way to invest in a given investment account, that may either be better or worse depending on how much time and resources you have available. At this point, with all these financial considerations set forth, we can step back and begin looking at our balance sheet as well – what assets do I own? What investments should people make (good or bad) based on the information about those properties?
This is when investing becomes more than merely “putting equity” into something/someone else’s portfolio. Some things certainly repeat themselves every year, and that is these frequently asked questions:
- What is an interest rate in realty?
- Who owns the title?
- Which party controls its disposition?
As long as these questions do not conflict with any of the above considerations, I will ask that everyone apply what they are comfortable with for their situation. As long as those are responsible investments made by people who think through their risks before they take action, there’s nothing preventing them from living comfortably enough not only while retiring, but even into old age without worrying too deeply about the unpredictable.
Time Value of Money
Investing in real estate is one of the more traditional options for investing in the future. Fundraise lets you get in and forget about a piece of your real estate pie by investing in REITs (Real Property Investment Trusts). You can invest in these funds – traded funds at a much lower cost than your traditional investment options, which depend on rising property interest rates and the market’s response to inflation.
If you want a rental property that generates cash flow, or if you just want to buy and hold, a competent real estate agent can make the difference. You should either outsource your property management or find another way to invest in real estate. If you want the high returns that a REIT offers, you need to find a great real estate investment firm like Tavanco. If you’re at all wondering about how to enter into this industry or need expert, professional guidance, please don’t hesitate to get in touch with us. We would love to pave the path for you throughout your journey.