Why Invest in Real Esate?

Real Estate investment is becoming more and more popular, and not just for property developers.  An increasing number of regular homeowners are purchasing second homes to flip, rental properties and homes for their college aged children.  But why are these people "jumping on the bandwagon", so to speak?

The Attraction

First of all, investing in Real Estate provides an attractive return on investment (or ROI).  To start, investors can generally use only a small amount of their own capital as a down payment, and receive the remaining amount of money required to purchase a property as a mortgage (for example, 20% down payment and 80% financing from a mortgage).  This is known as the "principle of leverage".  Historically, real estate has appreciated at an average of 5% per year over the past 25 years. Appreciation of course is not guaranteed and is subject to major economic forces such as the current global recession. Serious investors learn that the best time to acquire investment property is in a down market. One caveat that should be stressed here is that you need to be comfortable that the down market is "critical" and not "chronic" in nature. By critical we mean that the cause of the down turn will go away at some time and the market will rebound. If the down market is caused by a serious disaster like an ice storm, it is classed as critical because it will go away. However, if the downturn is caused by the only major employer in town closing down it is classed as chronic and you should stay away from investing in that area unless you can solve the employment issue.

Another option to invest in Real Estate is to participate in Investor Groups or Syndications where a group of like minded Investors pool their capital to invest in a larger investment than any individual investor could handle on their own. Larger investment projects should have the advantage of economy of scale and be able to afford Professional Property Management and Property Maintenance and still yield a good return to the investor. This type of investment can be essentially "passive" for the investor. Search out capable people like those at Sundance Realty and Management Inc. who have a successful track record of originating, administering and managing these larger syndications.

Real Estate investment can be beneficial for those who have a difficulty saving money, as it can act as a forced savings account.  Essentially, as you pay down the principal of a mortgage, you're reducing debt and building equity.  Then, when you go to sell the property, the money you receive back from the sale is considered your "savings".

Finally, one more attraction of venturing into real estate investing is the fact that it really only requires part of your time, is flexible, and the skills can be learned.  The process is relatively easy, and is therefore easy to pick up on.  It does, however, require motivation, drive, a positive attitude and the desire to pick up key principles, strategies and techniques.