Real estate, despite the ups and downs of the market, continues to be a favorite choice among investors.You may appreciate the tangible nature of investment real estate and the fact that you can own something that you can see and touch. Over the long term, making good decisions and choices with investment properties can help ensure that the values rise, reducing your risk of a bad investment. You must consider many factors when purchasing investment real estate.
What do You Bring?
Most successful real estate investors bring some form of sweat equity to their deals. While sweat equity is commonly thought of as someone's ability to do property repairs themselves, you may have the ability to earn sweat equity in other ways. A lawyer may be able to write leasing contracts and an accountant may have expertise in managing the properties himself. Evaluate your own talents first to know how you can best earn a return with real estate investing.
Real Estate Investment Trusts
If you do not want to purchase the actual properties and manage them yourself, you can purchase shares in a real estate investment trust. A REIT is basically a company that owns commercial or rental real estate, and by purchasing shares in the REIT, you can take advantage of the profits the property earns while relieving yourself of the management obligations directly. REITs distribute the profits earned from collecting rents to the shareholders directly, after keeping a portion for future repairs and investments.
You will do better as a commercial real estate investor by being a strong purchaser. Excellent credit means that you will pay a lower interest rate and most lenders require a credit score of 740 or greater in order to get the best rates. In addition, you should plan to have a down payment of at least 20 percent to purchase an investment property. If you do not meet these terms, you will pay more for a loan, if you can even obtain financing to purchase investment property.
If you do not qualify for financing at the most favorable terms to purchase your investment property or do not qualify for a loan at all, you may wish to turn to owner or seller financing for your property. A seller may be anxious to sell the property and be free of the daily management tasks but may also be interested in continuing to earn money on his investment in the form of interest on the loan. Be prepared to negotiate the exact rate and terms that you are looking for with the seller of the property.
Find a Good Broker
A good broker can make the purchase process go much more smoothly. Check for referrals from people you know who have recently purchased investment property, or even personal residences. You should also check with your state's board responsible for licensing brokers to see if it has received any complaints. Check to see how long the broker has been selling real estate, as experience can be extremely valuable with investment properties. You may wish to choose a broker who subscribes to a professional organization and pledges to uphold certain ethical standards when buying or selling homes.
Craig Woodman began writing professionally in 2007. Woodman's articles have been published in "Professional Distributor" magazine and in various online publications. He has written extensively on automotive issues, business, personal finance and recreational vehicles. Woodman is pursuing a Bachelor of Science in finance through online education.