Real Estate Finance and Investment

You may have considered getting into property finance and investment but are not exactly certain how to do so. One thing you need to do before you start is to increase your knowledge regarding the different financing alternatives that are available to you. A lot of people discover that investing is their sole way to purchase property when they start their venture with property financing for the first time.

When you come across the term leverage used in property finance and investment, you may learn that this term just means borrowing money in order to finance a property investment. Your primary investment is going to be the money which you use for down payment.

To benefit from this leverage in your property finance and investment technique, you may wish to secure the loan at a low interest rate and ensure that the loan’s term is more than the longest possible duration of time. This is in order to steer yourself clear from having the minimum cash for yourself or other finance usage and being bound to the property.

However, you do need to take note that your investment risk is directly tied in with the leverage. When you put little down payment on the deal, the ratio of the quantity borrowed to the property’s value as well as the leverage is high, and this increases the risk of your property investment. If you place a higher down payment on the deal, you decrease the risk and the leverage.

A lot of people use a pyramiding scheme in their property finance and investment strategy in order to obtain more successful deals. To put simply, they are applying the equity on a single house in order to aid with purchasing another.

For instance, you buy a real estate for $100,000 by acquiring a loan of $80,000 and placing a down remittance of $20,000. After 6 months, you will have a positive money stream of $1,000 per month on the real estate and its worth will increase by $40,000 because of your reconstructions. As a result, you will have equity of about $70,000 at minimum on the real estate.

The Importance of Asset Allocation in Personal Finance and Investing

When it comes to personal finance and investing there are many things that we need to keep in mind. Naturally there is the personal budget and watching our outgoing expenses. Debt needs to be taken into account as well and hopefully avoided whenever possible. Insurance, expenses for children, taxes, and planning for the future are other areas of concern in personal finance.

One area that seems to confound some personal investors unnecessarily though is asset allocation. This is the idea of dividing your investments in such a way as to take advantage of the diversity of differing asset classes. Stocks, bonds, real estate, cash, and commodities are just some examples of the asset classes available to us as individual investors. Research has shown that asset allocation can be the single most important investment decision, but how does one determine the best way to allocate their limited assets over a seemingly unlimited field of investments?

One thing that needs to be kept firmly in mind is that the research into asset allocation was actually done using data from institutional investment accounts. Because the vast majority of individual investors do not have nearly enough capital to properly diversify over all the major asset classes, this research is not as relevant to the individual as one might hope. We can still take advantage of the research though by utilizing such investment vehicles as mutual funds and exchange traded funds (ETF’s).

The advantage of these investments for the individual investor is that they diversify your assets while allowing for smaller investment amounts. For example, an investor with just $50k in assets would be hard pressed to even develop a sufficiently diversified stock portfolio. This doesn’t even account for all of the other possible asset classes which can provide protection when stock prices are falling.

By utilizing ETF’s for example, an individual investor would be able to split their money across a variety of asset classes. There are often correlations between asset classes that make it possible to protect yourself from the volatility inherent in the markets. When stocks are falling, bonds are often rising. When bonds are falling, commodities may be rising. If commodities are falling, real estate could be on the upswing. By spreading your risk amongst the various asset classes you may limit your upside somewhat, but you are also lowering the volatility of your portfolio, allowing for a much smoother increase in your assets.

While this article has just touched on the importance of asset allocation to personal finance and investing, I think you get the gist. To learn more about the art of asset allocation you should visit the amateurassetallocator.com website, where you can get more detailed information on various asset classes and how diversification can protect your portfolio.

Tips on Personal Finance and Investing

The topic of personal finance and investing is a very big one. Most personal investors do not have a lot of money to start with and so it is important to make each cent count. Following are some tips for aspiring investors who need to decide which investments to include in their portfolio.

Choose a Time Frame

Some investments, such as buying bonds or annuities, involve committing the investment principal for a long term period. While a person will receive a small sum of money each month, the principal cannot be withdrawn at will. This means that one will not be able to access these funds even if they are direly needed.

On the other hand, some investments can be sold off at will. These investments include stocks, gold and any investments made in the Forex market. An investor should consider how long he or she can afford to have money tied up before choosing an investment type.

Risk Factor

Some types of investments are very risky. Tilting to small cap and value stocks is a popular trend these days, but it is not a particularly safe investment. There are also certain stocks that are very risky to purchase, as their value can be quite volatile.

The advantage of high risk investments is the prospect of making a lot of money quickly and easily. The riskier the investment, the more money one can potentially earn. However, a first time investor will need to beware of greed and make sure at least a sizable portion of his or her investments are low risk. While low risk investments do not bring in a lot of money right away, they do bring in steady income and the risk of losing a lot of money on these investments is very low.

Choosing a Sum

How much money one wants to put into any type of investment depends on various factors. One should carefully analyze his or her finances and determine how much money can be invested in any given type of fund. If the investment type is high risk, one should make sure that he or she can live without the sum of money being invested should the investment not work out as planned.

A newbie investor should also find out more about investment types before creating an investment portfolio. The website amateurassetallocator.com has a lot of helpful information that can help a person learn the ropes. By taking the time to learn as much as possible, a first time investor can avoid common mistakes and pitfalls and create a successful and profitable portfolio.

Tips For Your Real Estate Finance and Investment Strategy

You may have decided you would like to start investing in property but you are not exactly sure how to go about it. One thing you should do before you begin is to research the financing options that may be available to you.

Most people, when they first begin their endeavor with property investing, find that financing is their only means of purchasing property. The following is some information regarding real estate financing and investment strategy that may be beneficial to you.

When you hear the term “leverage” applied to real estate financing and investment, you will find that this term simply means to use borrowed money for financing your property investment. Your initial investment will be the money that you use for a down payment.

In order for this leverage to be beneficial in your real estate finance and investment strategy, you will want to secure the borrowed money at a low-interest rate and make sure the term of the loan is over the longest period of time that is possible. This is to avoid yourself from being tied up in the property and having least money for your own or other investment usage.

You do have to remember, however, that the risk of your investment is tied in directly with leverage. If you place a small down payment on the property, the leverage is high and the ratio of the amount owed to the value of the property is high, making the property a high risk. The more money you put as a down payment on the property, the lower the leverage and the lower the risk.

Many, in their real estate financing and investment strategy, use pyramiding to acquire more properties. What this simply means is that you are using the equity on one property to help you purchase another.

For example, you purchase a property for $100,000 by making a down payment of $20,000 and borrowing $80,000. The properties value at the time of the purchase is $110,000. Six months later, you have a positive cash flow of $1,000 a month on the property and its value has increased by $40,000 due to your renovations. You now have equity of approximately $70,000 or more in the property.

You take out a home equity loan of $30,000 and this is used for the down payment of another investment property. This is also known as pyramiding and is a real estate finance and investment strategy used by many.

Pyramiding through sale is also another real estate finance and investment strategy used by many, as well. In this method, when your property’s value has increased, you sell instead of taking out a home equity loan.

In the example above, if the same property was sold for its value of $150,000, you would use the money to pay off the initial loan of $80,000, deduct your initial investment of $20,000, what you have paid in interest and principal, as well as the cost of renovations, to discover you’ve made a profit of approximately $25,000 to $30,000 in a matter of a six-month period. This money can then be used as a down payment on another property.

Before you begin investing in property, it is crucial to understand what real estate finance and investment strategy you plan to use. However, it is also important to understand that property investment comes with risk. Research the facts and figures before you make any decision with your real estate finance and investment strategy.