Diversify Your Portfolio And Invest In Real Estate
The Chartered Financial Analyst (CFA) Institute categorizes real estate as an alternative investment that includes residential and commercial properties as well as mortgage-based securities and real estate investment trusts. For most real estate investors, these investments are characterized as income-generating properties that see revenue from rent earned and capital appreciation from the increase in market value. Since this investment vehicle depends on the net operating income (NOI), maximizing cash flow is key to a successful real estate investment.
Property Valuation
To fully understand the importance of cash flow when you Invest In Real Estate, it is necessary to know that the value of the property is directly linked to the NOI. Unlike residential homes that get their value from comparable sales, income-generating real estate value is calculated as the annual NOI multiplied by an industry standard rate of return, called the capitalization rate. For instance, if the property has an annual NOI of $100,000 and a 10 percent capitalization rate, then the property would be valued at one million dollars. Since NOI is calculated after expenses and both property value and return on investment are depended on NOI, it is important to maximize income and minimize expense.
The Risk/Return Profile
Commercial real estate increases in value based on two components. The first is capital appreciation from the increase in the surrounding market. As a neighborhood becomes nicer and properties sell at higher prices, the value of the commercial asset increases. There is very little that an investor can do to mitigate the risk of market increase or decrease.
The other component to value is the cash flow from income. Revenue is something the property owner has a large amount of control over and which the risk and return balance can be finely tuned. To lower risk, the operating pro forma should have both estimated market rate returns and lowest logical returns. Most cities have a U.S. Department of Housing and Urban Development (HUD) Section 8 program in which the municipality pays a tenant’s monthly rent. Since Section 8 units are in demand, these rent amounts are a safe low-end income value for your property. The HUD website has the maximum fair market rental amounts for each county in the United States.
Important Correlations
As an alternative investment, real estate is historically poorly correlated to the stock market, making it a good investment to diversify a portfolio. During times of stock market loss, real estate continues to offer returns. Real estate is positively correlated to inflation, meaning that it generally increases in value as inflation increases. This makes real estate a good inflation hedge.
I have a lot of connections within the Northern Colorado area. Please don’t hesitate to call and ask me any questions you might have. This process is all about you and your needs. Real Estate is a big investment and I understand that. One thing you will get with me is a personal relationship, In the end, that goes a long way.
Northern Colorado is a great place to Invest In Real Estate! For more information, please give me a ring or email me today. I would love the opportunity to earn your business and partner with you in regards to your Real Estate needs.
If you are looking to Invest In Real Estate, I can show you how to save a lot of money, as much as 10% on the purchase and finance of your next home.
Contact me today to learn about ALL of my strategies to get you the BEST price for your home in the SHORTEST possible time, with the least amount of Brain Damage!
Paul Ross 970-217-3245
RESIDENT REALTY
If you would like to learn more about how I can make it easy when you Invest In Real Estate, register for my Real Estate Investment seminar in February “MILLIONAIRE IN TEN YEARS”.
Come join us for 1 hour to learn about real estate investing. Whether you are renting currently and looking to make your first purchase, or you own a house and are looking to add to your portfolio, we will help shed light on multiple areas of “stacking” your real estate assets.
We have gathered a powerhouse team for all the stages of your real estate transaction. You will hear from a real estate agent, mortgage broker, title agency and home property management company – all sharing with you the tips and tricks of how to smoothly and safely invest in your future.
Leave your checkbooks at home, because we aren’t selling anything! We will be able to give you personalized information for where you are now and help you make a comfortable plan on how to let other people pay off your smart real estate investments.
You might be closer than you think to creating the wealth you deserve! Join us to find out what your steps to success can look like!
SOURCE:
https://realtytimes.com/consumeradvice/buyersadvice/item/1013945-20180112-diversify-your-portfolio-and-invest-in-real-estate?rtmpage=paulrosssellsnoco
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