Saturday, January 29, 2011

Real Estate Investment and Its Potential Disadvantages by Ravinder Tulsiani

Real Estate Investment and Its Potential Disadvantages by Ravinder Tulsiani

There are also many disadvantages to the real estate investment. These disadvantages can be easily taken off, if you have an insight about the limitations of real estate investment and what can be its short term as well as long-term repercussions. The basic disadvantages attached to any type of real estate investments are:

Taking Wrong Decisions

People going for the real estate investment property take decisions in haste.Make a firm decision when you go for purchasing your first real estate property, is just not easy man. If you are swayed by emotions, you will be ruined. Yes, I say RUINED! People do get broke, where they make decisions not from mind, but from their hearts. Objective feelings can get you the good real estate deal, and you ought to know this right from the beginning. Subjective actions will not land you anywhere. will give you first hand practical information on how to go while purchasing your first home. The way I did it!

No readily AVAILBLE Liquidity

With your real estate investment, you need to know one thing straight, and that is you simply cannot aspire hard cash immediately. You have to wait and watch the market movements and other socio-economic and politico economic factors before selling your real estate property, like a mall or your home. Instead, you can always borrow a sum of money against your property! But! Hey! Do you really want to go for borrowing?

Wait for Long

Real estate investment is something that gives you delayed returns. You have to be patient enough to wait in order your real estate property gets appreciated enough, and that can give you amazing yields. It is one investment that can even take a decade or more to give you high returns. In fact if you want to go for some fast returns, try thinking of investing in something else, such as information technology business, BPO etc.

Eats away your TIME and ENERGY

Real estate investment can get you real fatigue. It is a lethargic time consuming process that makes you feel almost laid back. You need to plan and have those instincts to get going with your property. You will learn more on about making you real estate investments more time efficient in later part of the chapters.

A Risky ADVENTURE to Ride

Investing in a real estate property can be a risky and costly event… Hmm, if you are not prepared before, you will make losses. Not just losses but, but you will become a pauper. Remember, as I said in my earlier statements, Real estate market is speculative. You never know, where your investments make you land. Just play the right way. The real estate strategies given in the book can show you the right path and you will be riding up and safe.

No Stringent Comparison Methodologies

Real estate market is variable. The price of two real estate properties can vary a great deal, provided you keep other factors such as time and location, constant. No two real estate properties can have exact. There always exists kind of variation and this need to be taken into account. Though, you do have the existing rule of thumbs and set strategies, but all these are workable, if tried in combination. Individually, they become worthless math.

Guided and Drawn on Government Policies

Government policies and regulations play an indispensable role in deciding on the real estate investment. These policies and regulations include control the zone based bylaws, construction activities; property prices; rent control procedures; license dispensations and property transfers; taxes etc. Therefore, in order to easily get through all these scruples, you need to have a legal advice from a seasoned real estate lawyer, and more so, you should have the best advice in your hand, when you want to make income through your real estate investment.

Wednesday, January 12, 2011

Advantages of real estate investing

Advantages of real estate investing

Investing in real estate is as advantageous and as attractive as investing in the stock market. I would say it has three times more prospects of making money than any other business. But, But, But… since, it is equally guided by the market forces; you cannot undermine the constant risks involved in the real estate. Let me begin discussing with you the advantages of real estate investments. I found the advantages as most suited and really practical.


Real Estate Investments are Less Risky

As compared to other investments, less of misadventure is involved in a real estate property. I will not get away from the fact that just like any investment you make; you have the risk of losing it. Real estate investments are traditionally considered a stable and rich gainer, provided if one takes it seriously and with full sagacity. The reasons for the real estate investments becoming less risky adventure primarily relate to various socio-economic factors, location, market behavior, the population density of an area; mortgage interest rate stability; good history of land appreciation, less of inflation and many more. As a rule of thumb, if you have a geographical area where there are plenty of resources available and low stable mortgage rates, you have good reason for investing in the real estate market of such a region. On the contrary, if you have the condo in a place, which is burgeoning under the high inflation, it is far-fetched to even think of investing in its real estate market.

No Need for Huge Starting Capital

A real estate property in Canada can be procured for an initial amount as low as $8,000 to $ 15,000, and the remaining amount can be taken on holding the property as security. This is what you call High Ratio Financing. If you don’t have the idea as to how it works, then let me explain you with the help of an example. Remember that saying… Examples are better than percepts!

Supposing, you buy a condo worth $200,000, then you have to just pay the initial capital amount say 10% of $200,000. The remaining amount (which is 90%) can be financed, against your condo. It means that in a High Ratio financing, the ratio between the debt (here in the example it is 90% Mortgage) and the equity (here in the example it is 10% down payment) is very high. It is also important to calculate high ratio mortgage insurance with the help of Canada Mortgage and Housing Corporation (CMHC). If needed, you can also purchase the condo on 100% mortgage price.

Honing Investment Skills

A real estate investment, especially when you buy a condo for yourself, will be a pleasurable learning experience. It gives you the opportunity to learn and when I went ahead with my first real estate property, I was totally a dump man. Ask me now, and I can tell you everything, from A to Z. Necessity is the mother of all inventions. I had the necessity to buy the property and so I tried with it, and I was successful. I acquired all the knowledge and skills through experience of selling and purchasing the residential property. Thanks to my job. It gave me the experience to become an investor.

Not a time taking Adventure

Real estate investment will not take out all your energies, until you are prepared and foresighted to take the adventure in full swing. You can save hell lot of time, if you are vigilant enough to know the techniques of making a judicious investment in the right time and when there are good market conditions prevailing at that point of time.

You should be prepared to time yourself. Take some time out, and do market research. Initiate small adventures that involve negotiating real estate deals, buying a property, managing it and then selling it off. Calculate the time invested in your real estate negotiation. If the time was less than the optimum time, you have done it right. And if you end up investing more time, then you need to work it out again, and make some real correction for consummating next deals. You have various ways and methodologies, called the Real Estate Strategies that can make it happen for you in the right manner.

Leverage is the Right Way

The concept of leverage in real estate is not a new one. It implies investing a part of your money and borrowing the rest from other sources, like banks, investment companies, finance companies, or other people’s money (OPM). There have been many instances where people have become rich by practically applying OPM Leverage Principal. As I had discussed under the sub head - No Need for Huge Starting Capital, the high ratio financing scheme gives an opportunity of no risk to the lenders, as the property becomes the security. Moreover, in case the lender is interested in selling the property, the net proceeds resulting from the sale of the property should comfortably cover the mortgage amount.

Now consider a situation, where the lender leverages the property at too high ratio debt say 98% or even more, and all of the sudden the market shows a down turn, then both the investor as well as the lender. Hence, greater is the mortgage debt, more is the lender’s risk, and it is therefore necessary that lender pays higher interest rates. The only way out to ease the risk from lender’s head is to get the mortgage insured. Two companies authorized to insure your high-ratio mortgage debts are CMHC (, and GE mortgage Insurance Canada (

Let me explain you with the help of an example… supposing, you are buying a real estate property worth $ 200,000 at three mortgages, with the first one of $100,000, the second of $75,000 and the third one of $25,000. Possible percentage of interest rates charged can be 3%, 5% and 7%. The last mortgage amount of $25,000 will be accounted, as riskiest; as it would relatively be the last mortgage that you will pay when you finally make a selling deal.

On the contrary, if the first mortgage representing almost 90% of your property price is insured against getting default or as high ratio mortgage, then in the above example, the basic interest rate would be 3%.

Let me explain you the leveraging concept by taking another example.

Supposing, you are buying a real estate property worth $200,000, and made down payment of 10%, equitable to $20,000, while financed the rest amount of $1,80,000. Over the year’s time, the value of your property appreciates by 10%. In this case, what would be the total return that you’d incur on your down payment of $20,000? It would be 200%. Yes 200%. Putting in simpler words, the down payment of $20,000 made by you has an appreciation of 10% over it, i.e. (10% increase of original home price of $ 200,000), 200% return on your down payment investment of $20,000.

On the contrary if you invest all the money in buying the property of $200,000, and in wake of appreciation of 10% over the year ($20,0000 would then be accrued to as 20%.

Synonymous with leveraging is pyramiding, where you borrow on the appreciated value of your existing property. Pyramiding applies the principal of leverage that enables you to purchase even more properties. This appreciated value over the real estate property in some selected areas results in accumulation of rich financial virtues.

Real Estate Appreciation

An appreciation is an average increase in the property value over original capital investment, taking place over a period. There are some neglected real estate properties that have an appreciation below the average mark, whereas, some of the properties located in maintained geographical areas, showing high demand, have an above average appreciation. In such centrally located and high demand areas, the average appreciation can reach up to 25% in a year. I will discuss appreciation in the chapter on real estate cycles. For now, for general understanding, appreciation is what goes up.

You Make Your Equity

As you gradually pay your mortgage debts, you are creating your equity. In other words, you would be reaching to original house price on which you have no debt. Your equity is absolutely free of percentage increase in appreciation. From the investor’s perspective, in real estate market, equity is the amount that is free of debt and it is the amount that an investor holds. When you sale your property, then the net money you get, after paying all the commissions and closing costs, becomes your equity. Lenders don’t want to take risk by allowing a loan on over 90% of equity. Therefore, in this manner, the lenders take the safety measures in wake of their loan being defaulted.

The Federal Bankruptcy act says that all the first mortgages of over 75% of the appraised or purchase value must be covered under high-ratio insurance schemes. However, there are certain conditions, wherein, CMHC offers the purchasers of real estate property qualifying the insurance, a mortgage of up to 100% of purchase price over your principal house value. In the wake of an event where borrowers want more money from the lenders, they would ideally settle for second and the third mortgages.

Low Inflation

Inflation is the rise in the prices of the products, commodities and services, or putting it another way, it is the decrease in your capacity to buy or hire the services. Supposing, a commodity was worth $10 a decade back, will now cost $ 100 as the result of inflation. For people who have fixed salaries feel the real brunt of the dollar, as the inflation rises. In Canada, the inflation rate varies and it varies every year. There was a time when Canada had a double-digit, but it was controlled to single digit, after the regulation of policy.

If we analyze closely, the land appreciation value for the residential real estate is 4% to 5% higher than inflation rate. Therefore, when you invest in real estate, then you are paying mortgage debts in high dollar value. Now as you are getting more, salary to pay less amount than the amount that you had paid in the original mortgage.

Tax Exemptions

You get various tax exemptions on your principal and investment income property. The tax exemptions available in real estate property investment are more than available in any other investment. In other investments, you lose terribly on the investments in your bank in the form of inflation and high taxes therein, but in real estate; you don’t actually have such hindrances.

Various tax exemptions available are:

•The interest receivable from your bank account, term deposit or guaranteed Investment Certificate (GIC) is completely taxable as income. A little math here will do the magic work for you. Supposing, if you get an interest of 8% on the deposit, and the on going inflation rate is 5%, the Real Return Rate will come out to be settled at 2%.
•You get completely tax-free capital gain on principal amount of your residential real estate property.
•You have the opportunity to ward off principal amount of your residential real estate property against the home expenses incurred by you.
•You can easily ward off the property depreciation against your income.
•You can cut the expenses incurred in real estate property investment through your income
•Tax rate reduced to approx. 50% of the capital gain.
•And many more

Net Positive and High Income is Generated

If taken in right direction and played seriously, a real estate investment can be your virtue making endeavor now and in times to come. You will not only be having additional assets building in your favor, but also with positive cash flow, your real estate property value will increase automatically.

High Return on Investments (ROIs)

Real estate investment gives you potentially high ROIs before and after the taxes levied on your income. In fact, investing in real estate gives you high ROIs after the taxes.

Demand for the Real Estate Increases

As a natural instance, when the population of a region increases, the total usable land decreases, and this provides the impetus for high real estate prices. There are many communities that can or cannot have growth and development regulations, thereby, resulting in limited land available for use. Therefore, the real estate prices of the area shoot up. Remember housing is the necessity of an individual and therefore it is much in demand than any other single commodity taken. Furthermore, there are people who purchase additional houses for their recreation, recluse or as a past time. This in turn increases the demand for land.

Tuesday, January 11, 2011

Canada and the Housing Explosion by Ravinder Tulsiani

Canada and the Housing Explosion by Ravinder Tulsiani

Canadian real estate market is growing at an alarming rate. This phenomenal growth is more prevalent in the western provinces, and this has been primarily aided by increased number of jobs; low unemployment rate, low interest rates and as the result low mortgage rates on the real estate property. These low interest mortgage loans were primarily accorded because the condos were available for selling, before they were physically present on the land. A new set of protocols is therefore created. Under this, the real estate property agents and developers begin to sell a part of property, before the construction activity, and sells the remaining realty after the construction is over. In this manner, the realty developers can adjust the prices of condos and other housing properties according to the prevailing real estate property market.

Moreover, beyond these low interest mortgage rates, market is also susceptible to the likings and demands of the consumers. Take for example, in Alberta, due to greater availability of oil resources have resulted in an extensive migration of people to the region and as the result there is housing shortage and this has driven the realty prices high. Now for those Albertans, who have passed their prime can earn huge profits by selling their property at high prices and moving to British Columbia for amusements and to enjoy their life to the hilt, by keeping themselves busy doing golfing, fishing, and sailing.

Moreover, the regions located along the coast show a tremendous immigration belonging to retiring age groups. As per the population statistics of Canada, such a large-scale immigration of working people has not been seen anytime during the century. The important point to think is that many of these retirees have good amount of time, at least 15 years or more, to enjoy their life, and do what they want to do.

The infrastructure planners and developers conceptualize the new and innovative construction ideas in order to realize the dreams of the new immigrants. With new building and construction concepts developing, there is much demand for housing in Canada. An average Canadian has his or her morale boosted. The one time sluggish economy of Ottawa has transformed into a strong business activity center and plenty of job opportunities, and this has created demand of residential real estate, all of a sudden.

Saskatchewan is another such example, which has seen the growth in its economy has taken place because of surplus of natural resources rich in uranium and potash. It also has one of the Canada’s big grain markets and as the result; there has been phenomenal boost in the real estate sector in this region. Such a real estate boom has not seen elsewhere in Canada. Saskatchewan is the only province, which has seen the highest percentage of annual unit sales and the proposed new schemes for housing.

Another high commercial activity center of Canada - Toronto, and the greater Toronto area (GTA), already had appreciable real estate market, and it is developing even more, due to large-scale immigration, good employment opportunities. The real estate costs in GTA is continuously increasing, and above all, you will see that this area has undeterred scope for the housing. In addition, the prices of houses in Toronto are much higher as compared to other provinces such as Calgary and Edmonton. On the contrary, if one compares the rate of growth of housing prices, then Calgary and Edmonton, completely outsmarts Toronto.

About the Author:
Ravinder Tulsiani is a published author and writes numerous articles and books on finance, self-help and relationships.

Reprint Rights:
You may reprint this article provide that you give credit to Ravinder Tulsiani as the author and include the article's source link at the bottom of the article.

Thursday, January 6, 2011

control or gamble

control or gamble

In my previous article, i mentioned that an investor should not buy based on factors they cannot control since that is considered (in my view) speculation, not investing.

what should be looking for?

look for things you can control. what are these?

1. you can control the price you pay today relative to the market price. that is, how much of a discount you can negotiate off the fair market value of the property.

2. you can create forced appreciation of a particular property. (this is not macro, it's micro) I am not suggesting you can increase the value of the housing market, rather of only one property... yours.

how do you forcefully apprciate the value of a particular property?

buy properties in need of repairs (especially cosmetic), it's amazing how much improving curb appeal, replacing that burnt carpet and a fresh coat of paint can increase the value of a property.

Summary: control what you can when you invest, leave the rest to speculators (aka gamblers).

About the Author: Ravinder Tulsiani is a published author who has written about personal finance, real estate, self-help and online marketing.

can you still make a fortune in real estate?

can you still make a fortune in real estate

Of course you can.

careful though, if you think its as easy as just putting your money down on a new condo and waiting for it build to realize the gain due to appreciation, you may be in for a rough ride ahead.

I subscribe to the philosophy that only invest based on things you can control. if you cannot control something, you should not factor that in your equation.

so let me ask you, can you control appreciation? can you have a direct impact on the value of housing prices? or are you simply speculating on the fact that the prices have come down lately and are bound to go up considering historical performance of the market?

the answer in most cases is no. as an individual investor, we cannot control housing prices, the market etc... or any other macro economic elements.

so, if you're investing in real estate based on factors you cannot control, i call that speculation, not investment.

About the Author: Ravinder Tulsiani is a published author who has
written about personal finance, real estate, self-help and online