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The Quick Guide to Starting a Business in Residential Real Estate Investing

Opting to invest in residential real estate has become a popular trend amongst many investors. It is in human nature for investors to invest when the market is rising in terms of stock, gold, and housing and automatically stop investing when the market falls. In true essence this leads to many investors leaving a lot of money that could easily be earned.

If you take the time to understand the fundamental principals that come with real estate investment, you will be able to capitalize on various aspects that many other investors are known to miss out on.

The thing you have to understand is that real estate investing is no quick get rich scheme. Yes it does offer you the opportunity to make some quick cash through flipping houses however the word investment should always be related to long term. This will ensure you are more successful.

While most of the investors will be packing their bags to go home when the market falls, this is where you can utilise on the fundamental principals that you have learnt and capitalize in terms of large profits. You will be able to make money regardless of the market status.

The fundamentals

When the market for real estate is rising in terms of equity, it makes it very easy for any “layman” off the street to even make money in the real estate business. What you have to make sure is that you put your money at the right place at the right time.

No matter how much research you do, being able to predict the market will be impossible. For this reason it is better if you simply opt to understand four various profit centres.

1.Cash Flow – This simply entails of the amount of money your residential income property brings in. Even though it may seen quite simple to calculate, many tend to over look various factors. You need to include all the expenses that are needed to be paid. These would include mortgage payments, repairs, advertising, debts, maintenance etc. It is important you keep a tally of all expenses to give you a fair value of cash flow.

2. Appreciation – It is possible for the market value of your house to increase while you own it. This is seen to be one of the fastest ways to earn really good money. However seeing that the market is quite volatile, you never know what to expect. For this reason it is highly recommended that you keep your residential property for at least a five year period before you decide to sell it off once again.

3. Debt pay down – Now when you own a residential property you would be expected to make monthly mortgage payments. These simply are accumulated over time to reduce the amount of loan that you own to the lending company. Now seeing that we are aiming to look at long term investments there are a few things that you need to keep in mind. Now the common loan system that everyone opts for will simply include a monthly repayment with interest. If you are planning to hold your property for a couple of years, you will see that you are actually paying more than you initially took out because of the interest rate. Seeing that you are going to be looking to sell of your property in the future it is ideal to go for an interest based loan only. This will result to me more profitable for you in the long run.

4. Tax write offs – It is quite common for one to have to pay Alternative Minimum Tax on various real estate properties depending on weather or not you match the criteria. The tax is usually based on the earned income and you may even see your self having to pay short term capital gains tax as well. However there is a possibility that you can have your tax written off which can prove to be quite beneficial for many. The problem with those investors that deal with houses on a flipping houses basis, there income is treated as earned income. This means you would have to pay the full amount of tax that you would do for a 9 to 5 job as well.

If you stick to the strategies and fundamentals that have been highlighted above, you are known to be able to earn a good amount of money regardless of the market change. Any market trend that moves in your favour will obviously boost your profit prospects but even if the market moves in a negative favour, you are still going to be able to “fight” your way through.

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