==== ====Estate Investment Educationhttp://brian12674.my-real-estate-wealth.com/==== ====Investing in real estate is as advantageous and as attractive as investing in the stock market. Iwould say it has three times more prospects of making money than any other business. But, But,But... since, it is equally guided by the market forces; you cannot undermine the constant risksinvolved in the real estate. Let me begin discussing with you the advantages of real estateinvestments. I found the advantages as most suited and really practical.AdvantagesReal Estate Investments are Less RiskyAs compared to other investments, less of misadventure is involved in a real estate property. I willnot get away from the fact that just like any investment you make; you have the risk of losing it.Real estate investments are traditionally considered a stable and rich gainer, provided if one takesit seriously and with full sagacity. The reasons for the real estate investments becoming less riskyadventure primarily relate to various socio-economic factors, location, market behavior, thepopulation density of an area; mortgage interest rate stability; good history of land appreciation,less of inflation and many more. As a rule of thumb, if you have a geographical area where thereare plenty of resources available and low stable mortgage rates, you have good reason forinvesting in the real estate market of such a region. On the contrary, if you have the condo in aplace, which is burgeoning under the high inflation, it is far-fetched to even think of investing in itsreal estate market.No Need for Huge Starting CapitalA real estate property in Canada can be procured for an initial amount as low as $8,000 to $15,000, and the remaining amount can be taken on holding the property as security. This is whatyou call High Ratio Financing. If you dont have the idea as to how it works, then let me explainyou with the help of an example. Remember that saying... Examples are better than percepts!Supposing, you buy a condo worth $200,000, then you have to just pay the initial capital amountsay 10% of $200,000. The remaining amount (which is 90%) can be financed, against your condo.It means that in a High Ratio financing, the ratio between the debt (here in the example it is 90%Mortgage) and the equity (here in the example it is 10% down payment) is very high. It is alsoimportant to calculate high ratio mortgage insurance with the help of Canada Mortgage andHousing Corporation (CMHC). If needed, you can also purchase the condo on 100% mortgageprice.Honing Investment Skills
A real estate investment, especially when you buy a condo for yourself, will be a pleasurablelearning experience. It gives you the opportunity to learn and when I went ahead with my first realestate property, I was totally a dump man. Ask me now, and I can tell you everything, from A to Z.Necessity is the mother of all inventions. I had the necessity to buy the property and so I tried withit, and I was successful. I acquired all the knowledge and skills through experience of selling andpurchasing the residential property. Thanks to my job. It gave me the experience to become aninvestor.Not a time taking AdventureReal estate investment will not take out all your energies, until you are prepared and foresighted totake the adventure in full swing. You can save hell lot of time, if you are vigilant enough to knowthe techniques of making a judicious investment in the right time and when there are good marketconditions prevailing at that point of time.You should be prepared to time yourself. Take some time out, and do market research. Initiatesmall adventures that involve negotiating real estate deals, buying a property, managing it andthen selling it off. Calculate the time invested in your real estate negotiation. If the time was lessthan the optimum time, you have done it right. And if you end up investing more time, then youneed to work it out again, and make some real correction for consummating next deals. You havevarious ways and methodologies, called the Real Estate Strategies that can make it happen foryou in the right manner.Leverage is the Right WayThe concept of leverage in real estate is not a new one. It implies investing a part of your moneyand borrowing the rest from other sources, like banks, investment companies, finance companies,or other peoples money (OPM). There have been many instances where people have becomerich by practically applying OPM Leverage Principal. As I had discussed under the sub head - NoNeed for Huge Starting Capital, the high ratio financing scheme gives an opportunity of no risk tothe lenders, as the property becomes the security. Moreover, in case the lender is interested inselling the property, the net proceeds resulting from the sale of the property should comfortablycover the mortgage amount.Now consider a situation, where the lender leverages the property at too high ratio debt say 98%or even more, and all of the sudden the market shows a down turn, then both the investor as wellas the lender. Hence, greater is the mortgage debt, more is the lenders risk, and it is thereforenecessary that lender pays higher interest rates. The only way out to ease the risk from lendershead is to get the mortgage insured. Two companies authorized to insure your high-ratio mortgagedebts are CMHC (www.cmhc-schl.gc.ca), and GE mortgage Insurance Canada (gemortgage.ca).Letme explain you with the help of an example... supposing, you are buying a real estate propertyworth $ 200,000 at three mortgages, with the first one of $100,000, the second of $75,000 andthe third one of $25,000. Possible percentage of interest rates charged can be 3%, 5% and 7%.The last mortgage amount of $25,000 will be accounted, as riskiest; as it would relatively be thelast mortgage that you will pay when you finally make a selling deal.On the contrary, if the first mortgage representing almost 90% of your property price is insured
against getting default or as high ratio mortgage, then in the above example, the basic interest ratewould be 3%.Let me explain you the leveraging concept by taking another example.Supposing, you are buying a real estate property worth $200,000, and made down payment of10%, equitable to $20,000, while financed the rest amount of $1,80,000. Over the years time, thevalue of your property appreciates by 10%. In this case, what would be the total return that youdincur on your down payment of $20,000? It would be 200%. Yes 200%. Putting in simpler words,the down payment of $20,000 made by you has an appreciation of 10% over it, i.e. (10% increaseof original home price of $ 200,000), 200% return on your down payment investment of $20,000.On the contrary if you invest all the money in buying the property of $200,000, and in wake ofappreciation of 10% over the year ($20,0000 would then be accrued to as 20%.Synonymous with leveraging is pyramiding, where you borrow on the appreciated value of yourexisting property. Pyramiding applies the principal of leverage that enables you to purchase evenmore properties. This appreciated value over the real estate property in some selected areasresults in accumulation of rich financial virtues.Real Estate AppreciationAn appreciation is an average increase in the property value over original capital investment,taking place over a period. There are some neglected real estate properties that have anappreciation below the average mark, whereas, some of the properties located in maintainedgeographical areas, showing high demand, have an above average appreciation. In such centrallylocated and high demand areas, the average appreciation can reach up to 25% in a year. I willdiscuss appreciation in the chapter on real estate cycles. For now, for general understanding,appreciation is what goes up.You Make Your EquityAs you gradually pay your mortgage debts, you are creating your equity. In other words, you wouldbe reaching to original house price on which you have no debt. Your equity is absolutely free ofpercentage increase in appreciation. From the investors perspective, in real estate market, equityis the amount that is free of debt and it is the amount that an investor holds. When you sale yourproperty, then the net money you get, after paying all the commissions and closing costs,becomes your equity. Lenders dont want to take risk by allowing a loan on over 90% of equity.Therefore, in this manner, the lenders take the safety measures in wake of their loan beingdefaulted.The Federal Bankruptcy act says that all the first mortgages of over 75% of the appraised orpurchase value must be covered under high-ratio insurance schemes. However, there are certainconditions, wherein, CMHC offers the purchasers of real estate property qualifying the insurance,a mortgage of up to 100% of purchase price over your principal house value. In the wake of anevent where borrowers want more money from the lenders, they would ideally settle for secondand the third mortgages.
Low InflationInflation is the rise in the prices of the products, commodities and services, or putting it anotherway, it is the decrease in your capacity to buy or hire the services. Supposing, a commodity wasworth $10 a decade back, will now cost $ 100 as the result of inflation. For people who have fixedsalaries feel the real brunt of the dollar, as the inflation rises. In Canada, the inflation rate variesand it varies every year. There was a time when Canada had a double-digit, but it was controlledto single digit, after the regulation of policy.If we analyze closely, the land appreciation value for the residential real estate is 4% to 5% higherthan inflation rate. Therefore, when you invest in real estate, then you are paying mortgage debtsin high dollar value. Now as you are getting more, salary to pay less amount than the amount thatyou had paid in the original mortgage.Tax ExemptionsYou get various tax exemptions on your principal and investment income property. The taxexemptions available in real estate property investment are more than available in any otherinvestment. In other investments, you lose terribly on the investments in your bank in the form ofinflation and high taxes therein, but in real estate; you dont actually have such hindrances.Various tax exemptions available are:•The interest receivable from your bank account, term deposit or guaranteed InvestmentCertificate (GIC) is completely taxable as income. A little math here will do the magic work for you.Supposing, if you get an interest of 8% on the deposit, and the on going inflation rate is 5%, theReal Return Rate will come out to be settled at 2%.•You get completely tax-free capital gain on principal amount of your residential real estateproperty.•You have the opportunity to ward off principal amount of your residential real estate propertyagainst the home expenses incurred by you.•You can easily ward off the property depreciation against your income.•You can cut the expenses incurred in real estate property investment through your income•Tax rate reduced to approx. 50% of the capital gain.•And many moreNet Positive and High Income is GeneratedIf taken in right direction and played seriously, a real estate investment can be your virtue makingendeavor now and in times to come. You will not only be having additional assets building in yourfavor, but also with positive cash flow, your real estate property value will increase automatically.High Return on Investments (ROIs)Real estate investment gives you potentially high ROIs before and after the taxes levied on yourincome. In fact, investing in real estate gives you high ROIs after the taxes.Demand for the Real Estate Increases
As a natural instance, when the population of a region increases, the total usable land decreases,and this provides the impetus for high real estate prices. There are many communities that can orcannot have growth and development regulations, thereby, resulting in limited land available foruse. Therefore, the real estate prices of the area shoot up. Remember housing is the necessity ofan individual and therefore it is much in demand than any other single commodity taken.Furthermore, there are people who purchase additional houses for their recreation, recluse or as apast time. This in turn increases the demand for land.Ravinder Tulsiani is a published author who has written about personal finance, real estate, self-help and online marketing.Article Source:http://EzineArticles.com/?expert=Ravinder_Tulsiani==== ====Estate Investment Educationhttp://brian12674.my-real-estate-wealth.com/==== ====