Financial Future

Are you interested in real estate business? It sure is tempting, but what are the pitfalls? What should a new investor know before putting money into real estate?

There is one mantra that successful real estate investors live by: “buy low – sell high”. How can you apply this to your investment strategy?

1. Don’t get oversold: New investors can easily get caught up in the sale. Without experience or a background in real estate you may think your instincts are good and quickly get in over your head. Investment properties need to be undervalued and you need to do your research first. Don’t plan to buy without spending a lot of time comparing values. Your goal is to purchase an undervalued property which can take time and experience to spot.

The best way to determine the true value of a property is by comparing similar properties and noting the common features. The properties must be in the same area since location can drastically affect price range.

Take note of the features and failings of each property, how long they’re on the market and the price they sell for. Once you have a good understanding of the value of properties you will be able to tell when a property is undervalued – perhaps because a quick sale is needed or the seller is inexperienced. Don’t hesitate to barter for the best deal possible.

2. Know your market: You’re not buying for yourself so spend time noting the trends in the market. You can often find data in the local real estate papers listing the percentage of growth for various properties in the area over the past year.

Keep an eye on what’s moving quickly through the market and what features are promoted in new constructions. You can use this information to make your upgrades as market friendly as possible.

Be careful not to make the mistake of renovating to your personal tastes. Use neutral palettes and current styles to appeal to the broadest market.

3. Know your budget: The more time you spend researching the costs of your venture, the higher the profits you will see. Know how much you can spend, the price of materials and labor and the time frame to have it completed. Some experts would tell you to double or triple that amount. In any case, the more research you do the more accurate your budget will be.

Don’t get swept away in the process either; concentrate on the most profitable renovations. Kitchens and bathrooms are important. Adding French doors or updated lighting can also be a good investment. A fresh coat of paint is a must.

You have to do your home work before entering real estate business because investing in real estate is a financial business. Plan your investment like a business; make well researched decisions, stick to a budget, don’t let personal preferences get involved, and you’re ready to make some money!

The secret in real estate business is to use other people’s money. This is how most real estate tycoons are made. Unlike traditional residential real estate mortgages, real estate financing offers much broader financial options, including lending or financing from various financial institutions. Transactions like these call for above-average negotiation skills.

It’s not advisable to invest your own money in a real estate as for a few very important reasons. First, you you tend to give most of your profits away by not leveraging your investment. Second, real estate is a very risky business – you don’t want to jeopardize everything you have.

This is not to say that real estate investment is all about losses. On the contrary. if you know how to make money work for you, you may actually garner a great deal of money in return for your investment.

Here’s how:

If, for example, you purchase a $100,000 property that increases an average of 7 percent per year (in reality that number could be higher or lower), you would see a net profit from renting your property resulting in an approximately 15 percent return.

If you’re content with little return of investment, you might settle with your 15 percent return. But if you really want to earn on your investment, consider the possibility of what leveraging can do for you. At present, a typical real estate investor can find financing as high as 95 to 97 percent of the purchase price. There even some instances where you may be able to get a 100 percent financing but we won’t use this for our example as it’s an inadequate comparison.

So, if you’re are an investor who is already content with a smallreturn of investment then 15 percent sounds like a lot. But for those who really want to make it big in the real estate, 15 percent is far from being considered a noteworthy return.

How does leveraging work?

Let’s assume that the rental income will cover all your expenses, including the mortgage payments. Taking the same example, a 7 percent appreciation of your property results in a $7,000 profit per year. With a 95% financing in place, you’ll be able to get a $7,000 return on $5,000 (your 5 percent down payment on a $100,000 real estate property). This will provide you with a 140 percent return on your investment. Not only that, with the same $100,000 you can go out and purchase 20 investment properties, finance 95% percent of them, and make an amazing $140,000 profit a year. This totally beats the $15,000 profit with an all-cash transaction.

In terms of the additional 20 properties, expect to have a hard time getting financing for them since usually only five or six new rental property mortgages are the maximum that lenders presently allow. Which is why you need to have an above-average negotiation skills.

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The world has repeatedly experienced the crisis. From the beginning only regional to global. Asia, for example, has experienced a crisis in 1997-1998.

This crisis originated from Thailand which although not spread far from East Asia and Southeast Asia. Recovery of the crisis occurred in 1999 and then we saw economic conditions in East and Southeast Asia continue to improve. However, in 2008 the world was a global crisis that started from developed countries are the United States. The whole world felt the impact. East Asian crisis and Southeast Asia in the 1997-1998 financial crisis began with the then spread to the economic crisis. For most of Asia, this economic crisis also spread to the social and political crisis. While the global crisis also began with 2008-2009 financial crisis, followed by the economic crisis. Fortunately, there is no social and political impact of the means.

Now many are saying that the global crisis was over. National income has increased again. However, often said that the new restoration feels for the financial sector. While the economic sector recovery was more sluggish. Even the social impact of the crisis is still felt to this day. In a recent UNDP report (The Global Financial Crisis and the Asia-Pacific Region, 2009) argued that social recovery is usually slower than the economic recovery. Even the social impacts such as low nutrient in children can last forever.

Meanwhile, many people who still worry about this economic recovery. The world’s financial system was the cause of all crises are the same as before the crisis. Financial sector is always growing fast, much faster than production sector growth. Though the financial sector is needed to help the growth of the production sector. Financial sectors like oil for motor vehicles can run well. When the oil is too much, any vehicle will stagger and perhaps even strike. That’s what happens when the financial sector drove rapidly, leaving growth in the production sector. This has repeatedly occurred.

Financial sector growth is remarkable, which is also reflected by the growth of national income, eventually followed by the financial crisis. Even worse, the dynamics of the financial sector is often very dependent on “gossip” among investors in the financial sector. When these investors lose confidence, they trooped to sell their securities. Financial sector to fall and consequently create more confidence in the fall. Bank may fall so that the economy hit resin.

When the confidence of investors to recover, the financial sector also recovered. However, do not automatically recover the production sector. Restoring production sector requires a longer time than just building confidence of investors. Unfortunately, until now we have not managed to regulate the sector controlled by the “rumors” these investors. Would our economy and social sector we are constantly influenced by the gossip these investors? If the rumors they make a mess the financial sector, economic sector apart, and social sectors affected by the old.

If the gossip they improved, improved financial sector, investors again triumphed. However, the sector followed with a slow economy, and social sectors will be followed by much slower again. Without a fundamental change in world financial structure, the same pattern will continue over and over. Financial sector grew rapidly, then the crisis, and recovery occurs. Then the financial sector grew rapidly again, and again the crisis. And so on. With the financial integration and a stronger economy, a crisis will occur even more widespread and profound. The distance from one crisis to another crisis would be shorter.

Financial and economic crisis is feared finally brings social and political crisis. Currently in some countries the property sector has provided heat symptoms. People raced to speculate in the property sector. Inflation in some countries began to worry about a new danger. This all danger signals. The crisis will happen again soon? Volume II global crisis? And, suddenly, last Wednesday (November 25, 2009), Dubai World, a Dubai government owned conglomerate, announced the postponement of payment of their debts.

This indicates this conglomeration of financial difficulties. Suddenly this news makes investors panicked. They raced to sell their securities. Meanwhile, because the date 27 days holiday (Idul Adha), followed by week-end, financial markets are closed and not much information obtained from Dubai. On Sunday (November 29) United Arab Emirates government to try to calm investors by saying that they would help the liquidity of the financial sector in Dubai. This week is the week that counts. We’ll see whether this crisis will remain Dubai in Dubai alone, or be extended to Asia, Europe, and the whole world.

Is this going to be a global crisis of volume II? Hopefully, this crisis can be detained Dubai in Dubai and did not spread everywhere. Whatever the outcome, it seems we should have immediately made the financial arrangements of the new world, which does not rely on gossip investors. We should not have to rush immediately to integrate our financial sector to the world’s financial sectors. We can give an example to regulate the financial sector so as not to grow leaves production sector growth. Financial sector needs to be returned to the original function of helping the growth of the production sector.

Do the financial sector into a separate profit center, regardless of the production sector, as long as this happens, and always produces a crisis. In addition, to guard against the possibility of a global crisis of volume II, either because of crisis Dubai or any other crisis, we need to further consider the domestic economy. Integration of the domestic economy became far more important than any regional integration or global integration. With the dependence on market and major factor in the country, we can reduce the impact of the global crisis on our global economic and social sectors. This Crisis clearly shows that we benefit in two ways.

First, the financial sector, we have not really integrated into the world financial sector. Second, the contribution of our exports is still low.

Closing years late, billionaire Warren Buffett told his view of the economy in the future. From the predictions, there are eight points about the economic crisis that still haunt the country in various parts of the world.

Market participants assess this prediction is called the projection that is not bound by time. The reason Buffett gives general and comprehensive.

The following eight Warren Buffett’s view, as quoted CNBC.com, Tuesday (1/12/2009);

1. Forever recession is unavoidable. As the crisis that occurred in 2007. Buffett said that if the unemployment will increase significantly, and the U.S. economy fell into recession in 2008. According to Buffett, the shock is the capitalist cycle.

2. Any company or country will survive the recession and the future will be like they’ve survived past problems. “We have a wonderful economy. There never was anything like that in world history. We live seven times better than a century ago. We’ve got a problem all along. If you saw the last century, we have the Big Depression, World War II, the dam has the atomic bomb. But many countries are capable of running well, “he said.

3. Recessions will create opportunities. “I feel much better in my lifetime in 1974. And it is a very pessimistic and the oil shocks and stagflation, and all similar matters. But cheap stock prices.”

4. All shares will not be cheap. Market participants waited for the movement of the stock at the right time and right price.

5. Economic chaos will bear fruit mistake. Buffett cites this advice from his mentor Benjamin Graham: “You’re not right or wrong because others agree with you. You are right because the facts are correct and your reasoning correctly. And that’s the only thing that makes you right. And if the fact – facts and your reasoning is correct, you do not have to worry about other people. ”

6. Investors will mistakenly think falling stock prices is a bad thing. “If they lower the price of hamburgers at McDonald’s today, I feel great. Now I do not go back and think, gee, I paid a little more yesterday. I think I’ll buy it cheaper today. Whatever you do will come back to buy at times front, you want to have to be cheaper. ”

7. In a good situation sometimes often bad decisions. In 2000 Buffett letter to Berkshire shareholders, he compares the many market participants who buy when prices are high. “They know that overstaying the celebration (ie, continue to speculate) in the giant companies that have valuations relative to their cash, tend to produce in the future.

8. There will be more parties with wild stocks. “The world went mad. What we learn from history is that people do not learn from history,” added Buffett.