The Rewarding Investment of Real Estate

Real estate should not be considered only a short term investment as there are endless windows of opportunity for financial gain because of the changing market of real estate as well as economic conditions. When investing for the long term in real estate, consider that real estate is probably the most sound and safest investment in which one can make, especially in the buyer’s market that we are in, in today’s market. Inflation versus supply and demand factors pretty much ensures appreciation of properties over time. The land in which our world provides us cannot be reproduced such as the rate of reproduction in the human race, where more people simply creates more housing and more housing needs. Buying in today’s market is a wise move and a great investment because we are now at the downturn of the recession and now is the time to buy, as they say, timing is definitely everything.

Changing economic conditions radically influence real estate market conditions and vice versa. Each change in the real estate industry should be looked upon in a positive manner, as changes create new buying and selling opportunities. A perfect example of this is how an investment property was fostered by the crushing blow of the recession with property values plummeting. Low interest rates and escalating rental values work in simultaneously with short sales and foreclosure properties by providing unique and one of a kind opportunity in which to purchase properties, particularly properties that are rental homes, which provide a positive cash flow for the owner.

The most attractive side and characteristic of real estate investment is the return on the investment aspect. The stock market generates a return based on the amount that the investor puts into that investment, but the downside is that the entire amount invested can be at risk of loss. Appreciation in real estate values create equity based on the increase in value of the property, not the amount that is invested in the property. Take for instance, a home purchased for two hundred thousand dollars, with twenty percent down, appreciates at a rate of ten percent of the purchase price and produces a return of fifty percent on the invested dollar. Over a period of time, the average yearly appreciation rate is five percent, and the appreciation of the property compounds the generating appreciation of the previous year. Of course, the purchaser of the home makes the monthly mortgage payment, which typically includes in the payment interest, taxes and insurance on the property, but the home also is just what it is, a home, someone’s shelter and a huge investment. In the event a property is used as a rental, the mortgage payment is offset by the rental income that is generated from the property.

Another huge positive aspect of owning real estate as an investment is the tremendous tax deduction if the home is a primary residence. All real estate taxes and mortgage interest are tax deductible with the federal government which provides a significant reduction of the tax obligation.

If one finances a home through an FHA mortgage, often the buyer will ask if the seller can pay either part or all of the closing costs. This is typical practice, and greatly reduces the buyer’s financial investment. FHA insured financing requires a three and a half percent down payment and closing costs can be pretty hefty-anywhere between two and three percent of the purchase price of the investment. Real estate investors who seek to purchase through a mortgage lender and have less than twenty percent down are required to pay PMI, or Private Mortgage Insurance.

The primary factor that prevents the real estate investment from qualifying as a short term investment is the cost to sell. Unless the property was purchased at a below market price, commissions and closing cost can preclude a seller from recovering the initial investment and realize a profit from a recently purchased property. The combination of appreciation based on property value rather than investment, the tax deduction of interest and property taxes along with the fantastic rewards that come with home ownership is why home ownership is called The American Dream.

A newbie on the mortgage forefront in this new generation of real estate trends is call the ARC, or the Automatic Rate Cut mortgage. This is quite different that the typical conventional fixed rate loan because at any point in time, the interest rate can drop more than one quarter percent, then the mortgage loan is then recast at a lower rate automatically and is guaranteed not to increase. Refinancing a traditional mortgage creates a new loan, but with the ARC loan won’t, and the beauty here is that there are no closing costs when the loan adjusts. ARC’s are fairly new, and it is advised to seek the advice on ARC mortgages with a well versed, professional mortgage lender to know every option available to you in your safe and rewarding investment of real estate.

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