Monday, April 15, 2013

Investing Activity in Real Estate

Chris Woods
FIN 180
MW @ 2:00

As an entrepreneurship student at Fresno State, I am taught many things about business. I am taught very specific skills on how to start a business, who to talk to, how to market the business and debug logistics as well as others. But one of the other things that entrepreneurship students learn at Fresno State is how to take the money that you make from your business and use that money to buy other assets to create passive income that compensates your active income. Real Estate investing is one of those assets. They recommend that you research how to do research, then do research and make informed decisions, and maintaining the property.
Learning how to do the proper research to begin investing in real estate is the first step. You need to know how to find the information that you need to make an informed decision. Books are the recommended and most readily available form of learning how to invest in real estate. Another way to learn how to invest in real estate is to learn from another investor. This way you can go step-by-step through the process. You can watch and learn first-hand and ask questions to a person that will give you answers tailored to you. My classmate, Parker Buhl, used two forms of research to learn how to invest in real estate. His primary form of learning was from books; his second form of learning was from his uncles. The third, and least favorable, way to learn how to invest in real estate is to just jump in head first. This way to learn is best used in cooperation with at least books or having a teacher.
The next step to investing is researching properties on the market. One of the ways to apply this research is to do an investment analysis. This is a long, complex process consisting of seven steps. These steps take into account and analyze all of the applicable criteria of an investment property ranging from potential gross income all the way down to computing the internal rate of return. The seven steps are calculating your before tax cash flow, taxable income, after tax cash flow, before tax equity reversion, capital gains tax, discounting cash flows, and the final decision. In the final decision you compare the rate of return on the property to your desired rate of return and make a decision on whether or not to you want to invest in that property.
The final part of investing in real estate is maintaining the property if you have made the decision to invest. Property management companies can be very helpful in managing properties. They will take a cut of the rent, but if you are not experienced in managing properties, or are investing in properties that are near where you live, they will be well worth the money. They will, ideally, help you keep the costs down of maintaining the property as well as take up the responsibility of fixing what breaks and finding tenants to fill your vacancies. By doing these tasks, they will also free up your time turning these properties into assets that pay you money independent of your time and attention.
Investing in real estate is a great way to invest your money. Good investing will bring you higher returns than mutual funds or investing in stocks and bonds. Good investments will pay you monthly as well as provide a tax shelter against your income taxes. And when you hire a management company, you will have an asset, where someone else pays the mortgage and hopefully gives you a little bit of cash on the top. If you have the money, do the research, set up a management system, and let your money go to work for you. 

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