Financial Management

Archive for the ‘Investment Properties’ Category

Sources of investment capital and leverage

Real estate assets are typically very expensive in comparison to other widely-available investment instruments (such as stocks or bonds). Only rarely will real estate investors pay the entire amount of the purchase price of a property in cash. Usually, a large portion of the purchase price will be financed using some sort of financial instrument or debt, such as a mortgage loan collateralized by the property itself. The amount of the purchase price financed by debt is referred to as leverage. The amount financed by the investor’s own capital, through cash or other asset transfers, is referred to as equity. The ratio of leverage to total appraised value (often referred to as “LTV”, or loan to value for a conventional mortgage) is one mathematical measure of the risk an investor is taking by using leverage to finance the purchase of a property. Investors usually seek to decrease their equity requirements and increase their leverage, so that their return on investment (ROI) is maximized. Lenders and other financial institutions usually have minimum equity requirements for real estate investments they are being asked to finance, typically on the order of 20% of appraised value. Investors seeking low equity requirements may explore alternate financing arrangements as part of the purchase of a property (for instance, seller financing, seller subordination, private equity sources, etc.)

Some real estate investment organizations, such as real estate investment trusts (REITs) and some pension funds, have large enough capital reserves and investment strategies to allow 100% equity in the properties they purchase. This minimizes the risk which comes from leverage, but also limits potential ROI.

By leveraging the purchase of an investment property, the required periodic payments to service the debt create an ongoing (and sometimes large) negative cash flow beginning from the time of purchase. This is sometimes referred to as the carry cost or “carry” of the investment. To be successful, real estate investors must manage their cash flows to create enough positive income from the property to at least offset the carry costs.

Typical sources of investment properties include:

* Market listings (through a Multiple Listing Service or Commercial Information Exchange)
* Real estate agents
* Wholesalers (such as bank real estate owned departments and public agencies)
* Public auction (foreclosure sales, estate sales, etc.)
* Private sales

Once an investment property has been located, and preliminary due diligence (investigation and verification of the condition and status of the property) completed, the investor will have to negotiate a sale price and sale terms with the seller, then execute a contract for sale. Most investors employ real estate agents and real estate attorneys to assist with the acquisition process, as it can be quite complex and improperly executed transactions can be very costly. During the acquisition of a property, an investor will typically make a formal offer to buy including payment of “earnest money” to the seller at the start of negotiation to reserve the investor’s rights to complete the transaction if price and terms can be satisfactorily negotiated. This earnest money may or may not be refundable, and is considered to be a signal of the seriousness of the investor to purchase. The terms of the offer will also usually include a number of contingencies which allow the investor time to complete due diligence and obtain financing among other requirements prior to final purchase. Within the contingency period, the investor usually has the right to rescind the offer with no penalty and obtain a refund of earnest money deposits. Once contingencies have expired, rescinding the offer will usually require forfeit of earnest money deposits and may involve other penalties as well.

Understanding Investments

Investing is all about getting the most out of the capital invested by lending to others. These investments take many forms such as bonds, stocks, mutual funds, real estate and so on. While the investment, it is very important to know the investment options and duration, as can directly affect yield and capital growth.

Two important investment strategy is often talked about as a long term investment and short-term investments, and by comparing the advantages and disadvantages of these investments, one could decide which investments best suit their financial needs.

Investments held for less than one year referred to as short-term investments, and they are appointed for short periods of time hoping for significant results. On the other hand, long-term investments are investments that are held for a longer duration, more than a year. They are intended to slow but steady increase in results over a certain period of time during the year.

The advantage of short-term investments are long term is less than a few weeks to several months, with potential for rapid growth. In addition, the money did not come out of the ownership for a longer duration, and by observing the fluctuating markets, investors can control their money easily without incurring great losses.

Flipping through real state refers to a custom to buy a plot of land that have potential and sell it immediately by remodeling it. Flipping will give an investor a decent amount of profit. The flipping process can be applied in all asset management.

More Investor flipping: Under the policy of MIF (More investor flipping), a person can buy an asset at a lower price than the original market price, sell it very quickly to a third party investor who, in turn, sell the property to another buyer.

Flipping in real estate business: An investor will have a surplus of flipping a property asset by purchasing it at a low price and then sell it on as to the result of the launches of the real estate market. A house that requires some repair work is bought and repaired, remodeled, conditioned and sold by a fix-up.

Fixing and Flipping: An investor would snap and buy a house Read the rest of this entry »

A mutual fund is an alternative investment fund is formed by the voluntary contributions of money from individuals or legal entities called shareholders, which is met by a Fund Management Company.

The Fund Management Company in exchange for a commission, is responsible for managing and investing fund money in a diversified portfolio of financial instruments including stocks, bonds, notes, savings accounts, term deposits, etc., On behalf and risk of the participants.

By investing in a mutual fund, the investor acquires a number of participation shares, which have a value that results from dividing the fund’s assets (the sum of money from all participants) between the number of shares outstanding. This value varies according to daily price movements of the instruments comprising the fund’s investment portfolio.

The gain (or loss) of investment is to subtract the value of the share at the time the investor decides to sell, less the value of the share at the time they were purchased, multiplied by the number of shares you own.

The value of each share is information that the investor can access at any time, letting you know what you are getting returns on their investment, and help in the decision to withdraw their money from the mutual fund (sell shares) .

Real estate investment properties can be a lucrative venture. Both pros and amateurs in this field can easily gain profit from this kind of industry. However, without proper knowledge, one cannot maximize his earnings in this business.

If you want to gain more profit out of a particular auction property, you should have a vast range of options. Do not just search for an available real estate through paper ads or realtors. The World Wide Web offers a lot of information about the various areas near you where you can purchase a property at a very low price.

By the time that you already have an idea where to get your property investment it would be better if you would visit the site. From there you can see for yourself the condition of the house. If it needs too much renovation or construction before you can make use of it as a profitable real estate, then think twice. You might be getting it for a bargain price but it would cost you a lot before you can get a tenant to live in the house.

You should also know the kind of neighborhood where this property is located. This is an essential factor that would help you determine if you can easily get people to rent the house or buy the house instead. Moreover, the living conditions within the area could also help you decide regarding the value of the house as well.