Buying real estate or Investment properties is much more than just finding a home. Investing in real estate has become increasingly popular over the past decade and a common investment sector. Although the real estate market is full of opportunities for making big gains, it is time-taking and buying and owning real estate is a lot more complicated than investing in stocks and bonds.
Basic Rental Properties
A person will buy a property and rent it out to a tenant. The owner or the landlord is responsible for paying the mortgage, taxes and costs of maintaining the property. The landlord charges enough rent to cover all property related expenses or may charge more for profit, but the best way is to be patient and only charge only enough to cover expenses to pay mortgages, in which case a part of the rent becomes profit. Moreover, the property may also have appreciated in value over the course of the mortgage, making the property more valuable for the landlord.
But having a tenant can be adverse as well and you can end up with a bad tenant who damages the property or find no tenant at all. This leaves you with a negative monthly cash flow, meaning you are at loss over your mortgage payments. There is also the matter of finding the right property at the right place.
Perhaps the biggest difference between a rental property and other investments is the amount time and work involved. If you invest in a rental property, you will have many responsibilities as a landlord. You will have to keep everything in readiness at all times. When the furnace stops working in the middle of the night, it’s you who gets the phone call. For this, you will require a professional property manager who would do the necessary for you but for a price.
Real Estate Investment Groups
Real estate investment groups are small mutual funds for rental properties. Real estate investment groups are the answer if you want to own a rental property, but don’t want the hassle of being a landlord. A single investor can own one or multiple units in the living space, but the company operating the investment group collectively manages the whole building or society and takes care of the overall related process such as maintenance, advertising vacant units and interviewing tenants. In return, the landlord pays the company a percentage of the monthly rent.
Investment groups are of several types, but in the standard type, the lease is in the investor’s name and all of the units pool a portion of the rent to guard against occasional vacancies, which means you will receive enough for mortgage even if your unit is vacant. In theory, it is a safe way to enter real estate market, but groups are vulnerable to the same fees that haunt the mutual fund industry.