IntroductionThis article has been written to provide a novice person considering real estate investing some fundamental concepts to consider as you commit yourself to this area of interest. Like all new endeavors explored, it will be to your advantage to have some basic knowledge on the particular topic before you can truly appreciate if this is right for you.What Are The Financial Benefits Of Investing In Real Estate?There are various opportunities that will financially benefit you by investing in real estate. Based upon your current financial condition and future investment goals, there are many factors that must be considered when selecting both a business model as well as a specific project. The following section will provide an overview on the significant financial benefits that are achievable when you invest in real estate.Property AppreciationAlthough predicting future appreciation with great certainty is not feasible, by looking at specific economic indicators can assist the Real Estate Investor in understanding future trends with regards to property value and possible appreciation. Some of these key indicators are as follows:Job growthJob growth is a key contributor in establishing possible future appreciation. As Primary jobs (those jobs that export products outside of the local area like the car makers of Detroit) increase, the need for Secondary jobs will also increase by 2-3 times the number of Primary jobs. Secondary jobs provide services to the people performing the Primary jobs. Examples of secondary jobs include the following:Restaurant workersRetail store workersLocal trades (plumbers, electricians, builders, etc.)School employeesDemographic TrendsDemographic trends are another factor to consider when trying to determine if an area has the potential for future appreciation. Demographic research will provide data on the general population of an area which includes the following:Population ChangesAge distributionIncomeFamily SizeRaceOwners verses rentersMarital statusRevitalization InitiativesAnother factor that can affect the appreciation of an area is any revitalization initiatives the local government is undertaking. Revitalization can include the following:Improvements of roads and transportationCondemning and removing abandoned houses and buildingsCrime reductionTax credit, grants, and loans to developers and Investors to come into the area as well as programs to help keep the current employers from moving away.Economic development offices from the local government are typically responsible for implementing and managing the revitalization efforts.Cash flowAnother aspect of how to financially benefit from real estate investing is through the creation of cash flow. Although there are many factors that are taken into consideration that derives your cash flow, simply put, it is the amount of money left over for you after all of the expenses have been paid.The term cash flow is usually associated with properties that you are holding and generating income from rental units or homes. The great thing about creating a cash flow stream is that it will typically continue whether you stay in bed all day or off on a vacation. However, sustaining this cash flow will take some effort on your part and may include the following:Maintaining the propertyManaging the existing tenantsKeeping the property occupiedManaging property management companiesEquityProperty equity is the difference between the fair market value of the property and the sum of all of the loans against the property. For example, if a property is worth $250,000 and there is a first and second mortgage totaling $200,000, the property has $50,000 in equity. Having equity in your property is essential in order to have a cushion in the event the market exhibits declining value during the time you are holding the property. By utilizing strategies like a refinance or Line of Credit, it will allow you to pull this equity out of the property and use it as you see fit including a return of your initial investment or to leverage this capital to purchase another property. Although having strong cash flow with your properties is vital during your hold times, this income stream will disappear if you ever need to sell the property. Ultimately, it is the equity in your properties that will help set the stage for your long-term wealth creation and financial security.Tax IncentivesIn addition to the benefits mentioned above, there are outstanding tax incentives that the real estate investor can benefit from, they include the following:Depreciation of the actual property and any capital equipment that may be utilized in your business.Deductions resulting from expenses from owning and managing the property the property as well as business expenses you may incur.IRC 1031 exchanges, this is a powerful tax strategy that will allow you to leverage Capital Gains taxes that you would normally pay on the sale of an investment property and defer paying those taxes by purchasing a “Like-kind” replacement property with the full proceeds you received from the sale.Why Do You Want To Invest In Real Estate?It will be important for you to understand what reason(s) have motivated you to be interested and involved with real estate investing. Over the years, I have spoken to many new Investors on this subject and I have boiled it down to the following reasons:Supplement Your Current IncomeThere are some people who are looking at just supplementing their current income without the intention of leaving their current profession and look at real estate investing as their second job. The Investor’s that fall into this group are fortunate because they are not relying solely on real estate investing as their primary source of income, this will be very beneficial during the time you are developing you real estate skill set and investment portfolio.Take Control of Your Financial FutureBased upon the many years of speaking with Real Estate Investors, perhaps the most compelling reasons people consider real estate investing is the ability for you to have a significant influence of your financial security and for you to control the level of income you would like to receive.Create a Retirement Plan for YourselfUsing real estate investing as a vehicle to establish or augment a retirement plan is another common motivator I hear frequently from new investors. It is understandable that when economic conditions include downsizing, cost of living increases, and the fear of Social Security meltdown, people are concerned about having an adequate financial foundation to sustain them during their retirement phase of life.Critical Things to Consider Before Considering Real Estate InvestingInvesting in real estate is certainly not for everyone and it will be important for you to honestly assess if this is the right path for you. The following section will provide some basic questions you should ask yourself as you evaluate the feasibility of becoming involved as a Real Estate Investor.How Much Time Will You Have To Dedicate Towards Real Estate Investing?As we all know, you can’t create anymore time; there can only be 24 hours in a day. As you consider real estate investing, you will need to be realistic with regards to how much time you will have to devote to this endeavor. With today’s fast paced society that requires multiple income sources combined with the commitments you may already have with your family, many people can be left with little or no time to devote towards their real estate investing goals.Are You Able To Motivate Yourself And Have The Discipline Required To Succeed?Having the desire to be a successful Real Estate Investor is only part of the equation for ultimate success. Along with the desire to succeed comes the need for you to be able to motivate and discipline yourself. Real estate investing is certainly not for everyone despite the late
There is concern in some quarters that second homes have a negative impact on the economy of rural communities. In some parts of the UK, local strength of feeling about this has occasionally erupted into arson, for example, with a number of second homes being burned down in Wales.
The main issues that create controversy are twofold. Firstly, there is the argument that second home owners drive up prices in rural areas, pushing them out of the reach of local people and exacerbating the problem that there is not enough affordable housing for low income local families. This is clearly an area that needs a balanced approach and well thought out strategy to help solve this very real issue.
The second common concern is that second houses are unoccupied for a large part of the year and this deprives local businesses of potential custom, sometimes badly affecting their viability. Another aspect of this is that local schools can become short of children, sometimes forcing local schools to close. Indeed, on some areas very popular with second home owners, the area can feel like a ghost town out of season, without the community vitality and vibrant local economy that characterises some other rural areas.
The problems seem to be focused on highly localised rural and coastal areas, the kind of attractive areas that are popular for second homes. For example, in North Cornwall, one in three properties is thought to be a second home or holiday home,
In general, the more remote rural areas have the greatest concentrations of second homes as a proportion of all the housing stock, intensifying the problem of creating a sustainable and robust local community with a thriving local economy..
Although second and holiday homes contribute to an uplift in property prices in rural areas, it is important not to view their economic impact in isolation from other factors contributing to changes within rural communities and especially pressures on local housing markets from other groups such as commuters, retirees, or people wanting a lifestyle change.
One way that second home owners can help avoid any negative economic impacts on the local community is to maximise the extent to which the second home does not stand empty.
By renting a second home out as a holiday home for part of the year, when it is not in use by the owner’s family, it ensures that money is brought into the local economy as the family renting the holiday home will inevitably spend money in the local shops, restaurants and at local attractions. This is clearly a positive impact on the local economy and far better for the local community than having a second home stand empty.
Yet many owners of second homes resist renting out their home to holidaymakers.
There are a wide variety of reasons for this. It is often not as simple as whether or not the owner of a second home would like to make a profitable return on their property.
Some second home owners simply do not want strangers in their home and this is a strongly felt emotion they are not likely to overcome.
Others do not want to get involved in what they see as complex property management issues, involving a lot of work and practical difficulty. For these owners, the answer is often to hire a holiday homes services specialist that can take away the hassle and arrange everything on their behalf, making the whole process of renting out a holiday home very straightforward.
If a holiday homes services specialist is engaged, they can arrange all aspects of property management, cleaning services and key holder services as well as sometimes a holiday concierge service. This means that the second home owner can benefit from a stream of income from the property, all the gain without the pain.
In addition, the impact on the local economy is positive as the holiday home rentals bring money into the local shops, restaurants and attractions as well as necessitating the employment of local trades people, such as plumbers, electricians, painters and carpenters.
The impacts, both positive and negative, of second homes and holiday homes touch on a diverse range of factors that affect the sustainability of rural communities.
One thing is clear – renting out a second home as a holiday home has a more positive impact on the local economy than leaving it standing empty for long periods.