(DEMO ONLY) No commercial value involved

Real Estate markets are extremely complicated. The price movements in this market are usually slow and difficult to come by. A major factor behind this is the type of investors who put their money in the real estate markets. Therefore, an understanding of the real estate markets has to be rooted in an understanding of the underlying participants as well as their motives. We will have a look at these factors in this article:

Investment Motive

The most important feature based on which we can distinguish real estate investors is their investment motive. All investors buy real estate. However, not all of them do for the same reasons. Let’s have a look at the three major categories of investors in the market.

Speculators: These are the kinds of investors that should not be called “investors” in the first place. They give a bad name to real estate investing. This is because if you read their blogs and believe their claims, they will make a sophisticated operation like real estate investing sound like a no brainer. These are the people that claim to have made a million dollars in 4 years without any investment of their own simply by flipping real estate. The truth is that such results are almost never obtained. Real estate investment is an old school investment game which only pays off in the long run. Most of these speculators are either people trying to make a quick buck by selling their phony “surefire real estate profit strategy” or people who have fallen prey to these con men and are actually trying these phony strategies in the market! This category of investors was hard to find just a few years ago. However, of late, they have become a lot more common.

• End Users: This is the most common category of investors that you will find in the real estate market. Usually people who buy real estate are buying their own homes. They have the intention of staying in the house for decades. This changes their outlook towards the investment. These people do not look at real estate as a purely financial decision. They look at it as a lifestyle choice. This is because they have to stay in that house day in and day out. Hence, factors such as lifestyle amenities available nearby as well as the distance it takes to commute to work become extremely important. The demand for these kinds of investors can be predicted based on where their job locations currently are or are expected to be in the near future.

• Long Term Investors: Lastly, we have the long term real estate investors. Like the “flippers”, these people too invest in the real estate market to make money. However, their decisions are not short term. They understand that real estate is a slow moving, illiquid kind of asset that steadily grows in value over a number of years. Many corporations are also present in the real estate investment business.

Degree of Control

The long term investor category can be further subdivided into two more categories. These categories are distinguished based on the degree of control they exert on the property in question.

• Active Investors: Some long term investors prefer to manage the property themselves. They are the ones who conduct the repairs, find the tenants and rent out their properties. Also, they may be actively involved in the property management process and may visit the property several times to ensure that no damage has been carried out by the tenants. Since they actively participate in the investing process, they are called active investors.

• Passive Investors: There are other long term investors which have the ownership of the property. However, they do not take interest in managing its day to day affairs. To do so, they either hire employees or they end up hiring professional real estate management firms. Since they play no role in maintaining the property, they are called passive investors. They just provide the cash flow for financing the property and make very few (if any) decisions regarding its management.

Legal Entity

Lastly, the type of real estate investors can also be distinguished based on the type of legal entity they are. Legal entity is important because it determines the amount of liability that a person has.

• Individual Investors: Most of the investors in the real estate market are individual investors. Individual investors have an unlimited liability. This means that if they undertake a mortgage on one house and default on it, their other assets can be liquidated to make good the loss.

• Institutional Investors: There are many institutional investors in the real estate market as well. These institutions usually finance themselves by issuing long term bonds in the bond markets. Since these bonds have a secondary market, they are very liquid and provide the investors with the ability to enter and exit the real estate market without any major hassles. While, in terms of number, individual real estate investors may outnumber the institutional investors, in terms of scale or volume, they are no match for the big corporations who invest billions of dollars in real estate investments.

Real estate market, like the other markets, is therefore complicated. It has various investor groups, who have different motives and based on the competition and co-operation between them, the real estate prices are set.

(DEMO ONLY) No commercial value involved

Home ownership is often considered by the layman as being a single expense i.e. the purchase price of the property. However, if we were to truly analyze the situation, home ownership consists of several expenses. It is easy to forget about some of the expenses while budgeting. Therefore in this article we have prepared a checklist of some of the expenses that usually arise in such scenarios. Some of the investments are as follows:

Purchase Price

This is the most obvious cost that is associated with real estate investing. Therefore, if we buy a $100000 home, we think that we have invested only that amount. When people ask, “How much did you buy it for?” we give the above figure as the answer. However, as we shall discover in the course of this article that the layman’s viewpoint that $100000 is the complete cost of the property is usually incorrect.

To begin with there are transaction costs that are associated with the purchase. The transaction costs include brokerage paid, processing fees paid to the bank to process the mortgage loan as well the legal charges that are collected by the government to register the property in the name of the new buyer. First time buyers have a tendency to underestimate these expenses. However, they can quickly climb up to anywhere between 3% and 5% of the property value. Thus, even if the list price of the property is $100000, the actual price paid by the buyer will be at least $105000!

Interest Paid

Most properties that are purchased today are purchased using borrowed money. Mortgage is the new norm! People buying properties with cash down are virtually unheard of today. However, whenever there is a mortgage, there are mortgage payments and mortgage payments also include an interest component.

The amortization schedule of any mortgage is such that the banks collect all the interest first and then later collect the principal outstanding. For instance if your monthly payment is $1000, then in the first few months $900 will go towards interest itself! In fact, during the first 5 years of servicing a mortgage loan, the borrowers are servicing the interest payments only! Very little principal is reduced during this period. Hence, if these expenses are capitalized i.e. added to the value of the property, then the value of $100000 goes way above $100000.

Notional Interest

Apart from the interest paid, which is an out of pocket expense for the buyers, there is also notional interest involved in case of real estate investing. Most real estate investments require the buyer to put a down payment on the property. This down payment is close to 10% to 15% of the property value. Thus, for a $100000, a person has to offer an upfront payment of $15000. Now, there is an opportunity cost in making this payment. If this money was not used to make the down payment, then it would be earning interest in a bank or in some other investment. However, once it is used to make the down payment, it earns no interest!

Therefore the amount of notional interest lost should also be added to the property value i.e. to the $100000 that the buyer initially considered was their total investment in the property.

Insurance

Most mortgage lenders require the buyer to have insurance on the property. This is because in the event of natural disasters like earthquakes and hurricanes, the property could be destroyed. As such, the borrower will simply stop making payments towards the property. Therefore, in order to protect their interests, the lenders insist on insurance.

Even apart from the insurance which covers the value of the house, many homeowners opt for insurance for home contents as well. This is because they spend a significant amount of money doing interiors as well as need to make sure that their investment is protected in the event of an unforeseen scenario. This too adds to the cost of property ownership.

Property Taxes

When we buy real estate, we agree to make a stream of payments to the government every year until perpetuity! These payments are called property taxes and almost every government in the world levies these taxes. Once again, these taxes contribute significantly to the cost of home ownership. Also, one needs to understand that these costs are often adjusted in value over time. Therefore, these costs rise with inflation often at the same rate. Hence, while budgeting for buying property one must take into account the costs involved.

Maintenance

Properties across the world now come with amenities. Gated communities with swimming pools and jogging tracks are common. The idea is to provide the people with a lifestyle and not merely with a home. However, these amenities require a lot of maintenance. Gated communities require scores of employees and equipment to guard the place and keep it clean. As such, these charges are also billed to the homebuyers as a monthly expense. This too raises the cost of investment in a property. These costs can sneak up on an unsuspecting buyer and therefore one needs to be extremely wary of the same.

Utilities and Furniture

There are small costs involved with getting the utilities transferred to one’s name as well as furnishing the house. These costs too add to the total cost of home ownership.

Home ownership is therefore a complex maze of multiple costs. One needs to be very careful in understanding and budgeting for these hidden expenses as omission of these expenses can significantly dent your budget in the future.

(DEMO ONLY) No commercial value involved

Financing on real estate is secured by using of a financing note which is the evidence of an existing loan and the securing of that realty by the creation of a mortgage that becomes security for a loan. However, in everyday usage, the expression mortgage is typically used to mean a loan on real estate, mortgage loan or real estate financing.

The buyer of a home or builder most often obtains financing (a loan) for either the purchase or security against the real estate from a financial lending institution, like a bank, either direct or indirect using intermediaries. Features of real estate loans typically include the loan amount, loan maturity date, rate of interest, method for repaying the loan, plus other factors which may vary quite a lot from area to area.

In numerous jurisdictions, although not all, it is typical for homes to be purchased using mortgage financing. Few people have enough cash on hand or savings to permit them to buy a property outright. In regions where home ownership demand is the greatest, strong markets have expanded. The expression mortgage is a French Law term which means "dead pledge," it apparently means the pledge ends when the financial obligation is satisfied or else the lender takes the property back through a foreclosure action. With these thoughts in mind here are list of articles which have to do with financing. Enjoy!

1. Adjustable rate mortgage (ARM) - Finance

2. Affordable housing -

3. Amortization - Finance

4. Amortization schedule - Finance

5. Amortization calculator - Finance

6. Appraisal, Real estate - Apr 11, 2010

7. Appraised value - An estimate of the present worth of a property

8. Appreciation - Mar 12, 2011 ✓

9. APR - Anual Percentage Rate

10. Assumption of mortgage - Finance