Real estate is the thing in the United States that is growing the most quickly. In 2005, its value went up by 12 percent, while the value of other goods and services only went up by 4.5 percent. People are buying real estate instead of stocks and bonds because the return on investment is so high.
Some investors choose to put their money into properties that need work. They buy for a low price with the hope of selling for more once the house and yard have been fixed up. Many investors choose to fix things themselves to save money on labour. Some people hire outside workers to do the work. In either case, the cost of fixing up the house is likely to raise its value. It is likely that the new value will be more than the original price plus the cost of repairs. If the owner can sell the property quickly, he or she can get their money back, make a profit, and move on to buying more property.
Other investors buy properties that are empty and don't need much work to get them ready to sell. You can sell or rent out these homes. In this case, the owner has decided that the money will be paid back over time. The owner's monthly loan payment must be more than what the property rents for each month. When someone rents out a property, the owner is in charge of keeping it in good shape. He or she will be the landlord and collect the rent each month, make any repairs that are needed, and take care of the paperwork for finding tenants. If the owner doesn't have time to be a landlord, he or she can pay someone else or a real estate agency to do it for them. This saves the owner time and trouble, but it costs money to pay a salary to the replacement landlord. This has to be added to the price of renting. So, the monthly rent should be equal to the monthly cost of the loan plus the monthly cost of maintaining the property plus the cost of the landlord plus a profit for the owner.
An investor may sometimes decide to buy an apartment building or condo complex and rent out each unit. Here, the monthly cost of the loan should be divided by the number of units for rent, plus the monthly cost of keeping the property in good shape, plus the cost of a landlord, plus a profit for the owner. This should give you the monthly rent. If any units are empty, the owner must make up the difference in the loan payment that month. This can get very expensive if the units stay empty for a long time or if the number of empty units keeps going up.
At times, the housing market has gone down. The name for this is the bubble effect. Prices go up until, like a bubble, they burst and start to go down. If you have all your money in real estate, this can be a big problem. If you were counting on your new property to give you enough equity to make a profit, but the property's value stays the same or goes down, you may be in financial trouble. Make sure ahead of time that you will be able to pay your monthly bills. You shouldn't count on the equity to pay all of your bills. Experts in money say that you shouldn't sell the property if you don't have to and can still pay the bills. Wait it out and see if the prices of homes go back up.
Experts in finance say that a consumer who is well-informed will know what's going on in the market and be ready for it. Instead of taking out more loans to deal with the drop in real estate prices, they say you should cut back on expenses where you can. Use the extra money to pay off the loan faster and pay off less of it.
