Investing in real estate is all about seeing a return on your investment and knowing that it has outperformed other types of investments. To understand how well our investment is likely to perform we can measure its estimated percentage return using IRR. So, this article will explain this and another term, crowdfunding, so that we may better understand real estate as an investment. We will also consider how to make a wise choice when it comes to selecting the best real estate for our portfolio.
IRR
IRR stands for Internal Rate of Return. It represents the annual growth of an investment. It is calculated using the same concept as NPV (Net Present Value), except NPV is set to zero. IRR is perfect for analyzing capital budgeting projects and investments in real estate. Using this rate, potential rates of annual return over time can be compared. For more information, follow the link above.
Crowdfunding
Where does the money come from? You will need both equity investments from outside investors and debt financing – make sure to discuss this with a professional like Lincoln Frost beforehand. There are a few options for both of these choices. It’s not practical and may not be profitable to develop only the properties you can afford to purchase on your own, so you’ll need to know where you’re going to get extra money to work with for property purchase, planning, construction, and related expenses.
Where does the money come from? You will need both equity investments from outside investors and debt financing. There are a few options for both of these choices.
A new and popular financing alternative is crowdfunding. Crowdfunding is where a project is funded by raising small amounts of money from large numbers of people. It is often the case with real estate because it is an expensive purchase if you are to own the whole of a building. Real estate when shared still makes a good investment because of its ongoing income potential and the fact that everyone has an asset to fall back on to sell should they need to recoup their investment. Where several people own something they can always sell their share in it to another crowd funder who already has a vested interest in the project. You hear stories of a group of people buying their local pub, for instance. It can be a way of saving something for the local community as much as a way of making your money work best for you.
However, if crowdfunding isn’t suitable for your real estate investing needs, you may wish to consider a hard money loan. A hard money loan is one that is secure against another of your properties. Of course, it’s essential that you brush up on hard money loan requirements before you go ahead as they are best as short-term or bridging loans. Also, you will only need to pay the interest on the loan each month, and then pay off the total at the end. Indeed, whatever type of loan you choose for your real estate investing you will need to understand how it works, and what payments you will be responsible for.
Location
Location is everything when investing in real estate. To be able to anticipate the future growth potential of an area in terms of its economy and jobs can mean the difference between an investment just maintaining its value or bringing its investors a sizeable return on their investment in the long term. You have to think, too, would you want to live in the area? Do they have good schools, a low crime rate, plenty of job opportunities, or likely to have them in the future? If an area is under development it could be a good time to buy, because once it is fully developed there will be more services and facilities available and so more jobs created.
Another thing that can influence the property’s location is its use. For instance, if you have kids, you’d want to choose a home closer to schools, parks, and other kid-friendly recreational centers. On the other hand, you can consider investing in properties for sale in Fiji if you want to cater to the accommodation needs of vacationers on a luxury trip.
Home improvements
When making improvements to a property that you are investing in, it is important to make sure that they will add value to it. Improvements to focus on include making sure that the roof is sufficiently protecting all that is underneath it and making sure that kitchens and bathrooms have been sufficiently modernized. Also, with everyone’s concerns shifting more towards the environment, you will want to think about whether the home you are investing in is going to be energy-efficient in terms of its heating. For instance, the property should make use of sustainable energy sources. Moreover, if the property has solar panels fitted to its roof to generate electricity from the sun this can be beneficial. A smart meter is also a sign that the environment is being considered. Home is becoming more automated these days, so to have a home set-up for such gadgets is going to attract those wanting to stay there and potential buyers in the future. You can charge a premium when renting out such a property, while it remains your investment for and in the future.
So there are a few things to consider here when investing in real estate. We should know terms such as IRR and Crowdfunding on the financial side, and also know that the property we choose will be desirable to others in the future. We should consider where it is located and what features it has to offer. A property that is sought after by others will always remain a good investment.