Real estate investor
4529662
193127957
2008-02-21T21:54:43Z
Ken robinson1
6499659
/* External links */
A '''real estate investor''' is someone who actively or passively [[investment|invests]] in [[real estate]]. An active investor may buy a [[real property|property]], make repairs and/or improvements to the property, and sell it later for a profit. A passive investor might hire a firm to find and manage an investment property for him. Typically, investors choose [[real estate]] for several reasons: [[cash flow]], [[appreciation]], [[depreciation]], [[tax]] benefits and [[leverage]].
A cash flow investor might opt to put 5% or 10% down when acquiring a property. This may allow the investor to obtain favorable [[financing]] terms and a lower [[mortgage]] payment. This will often result in positive monthly cashflow, crudely derived by subtracting the monthly [[debt]] service from the monthly [[renting|rent]].
Appreciation occurs over time, generally, though an investor may "force the [[ownership equity|equity]]" in a property by making enhancements to it or the surrounding environment to increase its value. In general, [[residential]] real estate is valued by the "comparable sales" method which estimates the value of property under the principle of [[substitute good|substitution]]. The method estimates property values by comparing a subject property to similar properties sold in similar locations within a recent period of time.
Depreciation is one of the many benefits afforded to real estate investors. Though the property is actually increasing in value, the government allows owners to systematically depreciate the property over its projected useful life span. Depreciation is an allowable [[tax deduction]]. In addition to depreciation, an investor will usually claim the [[interest]] portion of his monthly mortgage payment as a tax deduction.
Leverage is a powerful reason for investing in real estate. If an investor used 100% cash to acquire a house worth $100,000, and the house increased in value by $5,000 in one year, then the investor made a return of 5% (assuming no other costs in this case). However, if the investor obtained 95% financing, only $5,000 cash would be required at the closing table, and a [[bank]] or other lender would loan the remaining $95,000 to acquire the property.
Assuming the same $5,000 increase in value, the investor's cash contribution of $5,000 would yield an increase in equity of $5,000 in one year, a 100% return. Of course, leverage works in the opposite manner as well. A $1,000 decrease in value would produe a negative 20% return on the $5,000 investment.
Real estate investing has become quite popular in recent years due to rising property values and low [[interest rate]]s. [[Deflation]] in property values or a sharp increase in interest rates would dampen the [[market]] considerably, however.
==External links==
*[http://money.cnn.com/2004/09/29/real_estate/investment_prop/gurus/index.htm CNNMoney.com story on real estate investment advisors]
[[Category:Real estate]]
[[zh:物業投資者]]
This article lacks information and makes a false 100% profit claim. 1. Banks do not lend money at 0% interest so that has to be added in and 2. risk is not included in the assumptions. there is less risk in buying a house with cash than with financing 95% of the cost.