This blog accompanies the text, Real Estate Analysis: Environments and Activities by Julian Diaz III and J. Andrew Hansz. Student are encouraged to post assignments and original research papers to this blog. Please contact firstname.lastname@example.org for posting rights or to add your program to the blog. Some blog posts and objective questions maybe considered for publication in a future edition of the text.
Monday, April 15, 2013
Investing Activity in Real Estate
MW @ 2:00
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.