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Investing in Real Estate

As tough as an economic crisis might be, it should always be remembered that it also offers great business opportunities for those who are prepared to seize them. Now is the perfect time to get ready: learn about investing, get acquainted with the different types of investment, keep yourself updated with trends in the markets you feel more comfortable with and elaborate your plan. Since there is no avoiding it, you want to make the most out of the crisis.

The current economic crisis is obviously affecting the real estate market as it’s becoming more and more obvious that properties have been overvalued in the last 10 years. While unemployment is growing, banks are also more reluctant to grant loans. Which causes a drop in property sales. In the short run, sellers will either have to lower their prices or not sell at all. Investing in real estate could therefore be a great way of generating cash flow.

I am not talking about buying cheap, waiting for the prices to go up and selling the property trying to make a good profit. It’s called speculation, it’s a method based on the overvaluation of properties and it can become very tricky when a crisis hits the economy (see what I mean?!).

How to generate cash flow with a property? By renting it out. You make money by collecting the rents on a monthly basis. For this strategy to work, you need to balance your income and expenses properly: make sure to invest in a property that you can easily rent out (so that you actually have rental income) and buy at the right price (so that you don’t lose money on your investment, not even at the beginning).

The hardest thing is to estimate your expenses right because it’s very easy to overlook something that, year after year, ends up costing a significant amount of money. Make sure you take into account the taxes you will be liable for as a property buyer and a landlord, the expenses related to maintaining the property, the expenses related to keeping the building in good shape (if you are investing in a flat), potential vacancies and insurance costs.

When you have a pretty good estimate of the rent you will be able to charge and the expenses you will have to support, you can calculate the amount of monthly loan payment you can afford and hence the amount of money you can borrow to buy the property (make sure you take interests into account). This is how you should calculate the price you offer for a property, no matter how much the seller is asking.

You can learn more about investing for beginners in simple terms at www.shortoncashflow.com where two small investors share their experience and mistakes.

posted by shortoncashflow on Jun 12, 2009 4:57 AM | 1 comment
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5 mistakes to avoid as beginning property investors

1. Purchasing a property as a person and not as a business – depending on your country, making the purchase of a rental property must be made by a legal business to deduct the monthly mortgage expense . Otherwise you can end up paying a lot of tax on rental income even if you are losing money on the property.

2. Not getting rent insurance to save money – this can be a huge mistake! In many countries the renter is overprotected by law and in some instances it is very difficult to kick out a renter who is not paying. You must always have insurance to keep yourself safe against unscrupulous renters, that will pay you and legal proceedings if they don’t.

3. Purchasing in an up market at a high price – even if you are buying to rent long-term and the monthly cash flow is in positive numbers you should never pay too much for a property or buy at the top of a market. This will eliminate any chance of selling it for a profit with a reasonable number of years.

4. Using the seller’s price to start negotiating – what the seller is asking means nothing. Make your own evaluation of what the property is worth and make an offer based on that. Never feel bad about making a ‘lowball’ offer. Offer less than you are willing to pay and only come up to that set amount, completely ignoring the initial asking price.

5. Not investigating community behavior and expenses – make sure you look over a history of community actions that will involve your money. Sometimes communities vote constantly for repairs and improvements which will cost you a fortune and kill you property’s cash flow . They can also mismanage money and over pay for repairs.

posted by shortoncashflow on Apr 16, 2009 6:21 AM | 1 comment
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Spain property market

My wife, Sally, and I have been following the Spanish property market since the beginning of the housing bubble in 2004. It was just when we first started to educate ourselves about economics and finances, that housing prices in Spain started going through the roof. With our limited financial situation it made it impossible to make our first property investment .

Our intention was not to speculate on rising prices but to earn more monthly cash flow. All of our work is oriented to building and buying more cash flow producing assets, may it be Websites, a business or property. Unfortunately for property we became interested just at the wrong moment as speculation set in, banks started going nuts giving 100% and more loans to insolvent borrowers.

For the past 10 years the largest part of Spain ’s economy has been construction. With that and tourism, the country doesn’t really produce much else. With the construction boom in Spain and soaring property prices everybody felt richer, there was more work, people’s houses were worth more, immigrants were migrating into the country for work at record numbers and Spain had the fastest growing economy of the European Union. An enormous bubble was inflating.

Now the bubble has finally popped. In 2007 housing sales starting slowing and in the 2008 sales dropped big time and the crisis set in. Now Spain ’s sole pillar of economic growth, construction, has come to a grinding halt as there are anywhere from 1 to 1.5 million excess new properties on the market waiting to be sold. Now unemployment in Spain is soaring with no end in sight. People are defaulting on their mortgages and many many properties are being repossessed and auctioned by banks.

If you browse Spain ’s leading housing site, idealista.com, you can see that asking prices for properties, for the most part, have not lowered much. People are still trying to sell their small flats for the price of a mansion. It remains to be seen how long the high prices can hold out as Spain is expected to be the country to fall the hardest, having had the biggest property boom of the world, even bigger than the US and the UK .

posted by shortoncashflow on Apr 16, 2009 6:20 AM | 1 comment
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