Real estate investments provide an opportunity to gain equity and generate cash flow for many people. Real estate is an excellent investment for long term or short term and the demand for commercial real estate investments are increasing day by day. Real estate investments and prices rises over the long run by substantial amounts. The real estate investments include homebuilder stocks, real estate investment trusts (REITs), and real estate mutual funds.
There are three broad strategies for real estate investments namely bargain purchase, increase value and double digit cap rate. The first category includes the purchase of a real estate for at least 20% below current market value. In the case of an increase value strategy, the property is bought for its market value and after making certain changes to the property it is resold at a higher rate. Whereas double digit cap rate strategy includes the purchase of a property on terms that it has a capitalization rate of 10% or more. Capitalization rate is the ratio of the net operating income and the purchase price.
Debt and equity are the two most important methods used in real estate investments. Debt requires an individual to pay fixed amounts of principal and interest which is finally recorded as liability on the balance sheet. On the contrary, the equity investments are considered as capital.
There are many pros and cons for real estate investments. The positive factors of real estate investments are the property can be sold very easily, good for non-business oriented persons, and is more useful when trying to buy a single family real estate. It can also be an exceptional long term tax break tool. At the same time there are some disadvantages to real estate investments. These investments need more hands-on involvement, and when it comes to long term investments, the difficulties can be numerous. Another negative factor is that it will take more money and time for maintenance and repairs.
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Source: www.articlesphere.com
