Real Estate Investment Trust: Enabling you to be a part of the party

Real estate is a big business and everyone seems to want to invest in real estate. You keep hearing a lot of stories about how people made a quick buck by investing in real estate. There are stories about people who made $50000 in a fortnight by making the right kind of investment in real estate. Every now and then, newspapers keep coming up with statistics about the appreciation in the real estate prices. There seems a mad rush for investing in real estate (and this gets even bigger when the mortgage interest rates are falling). However, not everyone has the time, money and expertise to be able to profitably invest in real estate. So what does one do? Is there any other option?

Yes, there is another way of investing in real estate and that is through Real Estate Investment Trust. Real Estate Investment Trust is an organisation that invests in real estate as a full fledged business. By investing in a Real Estate Investment Trust, you can become part of the real estate investment party and enjoy profits (of course, the assumption here is that the Real Estate Investment Trust is good and professionally managed).

Investing in Real Estate Investment Trust is very easy too. You can just buy Real Estate Investment Trust shares which trade on all major exchanges. There are certain laws governing the Real Estate Investment Trusts that help them avoiding the tax at corporate levels e.g. it is mandated that Real Estate Investment Trust’s portfolio has 75 percent of investment in real estate. Moreover, 75% of the income of Real Estate Investment Trust must be from rents or mortgage interest. There are various types of Real Estate Investment Trusts. Some Real Estate Investment Trusts own properties themselves and hence feed on the rental income from those properties. Some others indulge in providing only mortgage loans or go for mortgage backed securities. Then there are Real Estate Investment Trusts which do both i.e. rental focussed investments and mortgage based investments.

There are a number of Real Estate Investment Trusts operating in the market and a lot of these Real Estate Investment Trusts are doing good business. By investing in Real Estate Investment Trust you are basically investing in real estate without actually buying a property yourself. This is one easy way of investing in real estate (and much safer too). You must surely evaluate this option for your real estate investments.

Your mortgage off early

One niggling question that perhaps gnaws at everyone’s peace of mind at some point of time or other is: Should you pay off your home loan or invest the money? You’ll be amazed by the variety of answers this question can elicit, and from this alone you can realize that there’s no one answer for everyone. Though theoretically, the concept is simple: If you think of extra mortgage payments as an investment and your return as the interest on the loan, you need to now consider if you can get higher returns elsewhere? “Yes?” Then, keep the mortgage and invest the money securely.

Having said that, it’s a matter that requires great thought whether you should pay off your mortgage payments or carry them for longer. It depends on several factors such as your tax bracket, how your cash-flow picture looks and what you think about carrying a big loan on your head. Your decision really depends on your mental make-up and your situation in life.

For instance, if you are at the peak of your career, you should hold on to your mortgage. No, don’t consider paying off an early mortgage just yet. If you are in the high income bracket, it means higher income tax too. The good news is that your mortgage interest is just one more income tax deduction you can claim to pay a lower tax. This is the happy side to your loan and you never realized it, did you?

Now, you can even get the most out of your mortgage-interest deduction if you pay off the greater part of your interest early on in your loan term. You can do this by paying one or two more installments during the year. Now to balance your budget, take care to save for a rainy day, for your children’s education, etc.

If mortgage rates are low, invest your money in schemes that give you better returns. But when mortgage rates are higher, invest it in to your home since this guarantees you a higher rate of interest. If for example, you have a 14% mortgage, you can get a 14% rate of interest if you pay it off. Then, before you know it, you will be loan-free.

If you are reaching retirement age, you perhaps want to expedite the repayment of your loans so that you are debt-free when you hang up your boots. Ensure that paying off your mortgage payments in a rush doesn’t actually become counter-productive.

So suppose you decide to refinance your mortgage so that your term is shortened to 15 years and you have a zero balance on your home loan by the time you’re 65 years old. Due to this, your principal and interest payment stand at $950 a month instead of $750 a month. When you reach pay-off day, you can now invest that $950 in a fund that gives you 9% interest. Give yourself another 15 years and you’ll have a tidy sum of $360,000.

Now let us suppose you’ve been retired for a few years now. Considering this, you’re sure to have been paying off more principal than mortgage interest. If this is so, paying off the mortgage loan becomes your prime interest in life, besides also proving to be a cash flow problem. If you know that post-retirement your cash flow will be largely restricted, it would be wiser for you to concentrate on paying off your mortgage. But if you have a few assets or none, it might be a better idea for you to diversify your investments. You could consider saving in either a savings or money market account which would give you healthier returns than the interest you are paying out on your mortgage.

If you’ve just sold a big house and are cash-rich, taking out a mortgage makes complete sense, just so long as your investment returns are larger than your mortgage interest. If you don’t tie up all your cash in real estate, you can take full advantage of tax deduction, invest in other schemes and have greater liquidity at your command. Not only will your loan be paid off, but you will have peace of mind in your sunset years.

4 Tips to Make You More Aware

Everyone wants to buy their own home and the most convenient way to do this in a “rush, rush world” like today, is by applying for a mortgage loan. The mortgage loan business is a big one. There are hundreds if not thousands of them trying to lure you in, but you have to beware and watch out for crooked mortgage companies. These crooked companies are out there and won’t care if your loose your home, your savings or even if you go bankrupt. They especially like to prey on the first time home buyer. These companies are looking out for themselves not you, so when you start your hunt for a mortgage make sure you don’t fall into their trap, no matter how seductive their deals may sound. Here are a few tips to help you point out a crooked and fraudulent mortgage company.

1. Be aware if the lender doesn’t give you a good faith estimate of what the closing cost will be. Under The Real Estates Settlement Act they must provide you with this information within three days once you have applied for the loan. An honest lender will give this to you without a problem as they have nothing to hide. Some of the really good lenders will even give you a good faith estimate on your pre–qualifying information. Also watch out for any company that won’t give you information on any of the costs up front, such as interest and other fees.

2. Beware if the lender says it is ok for you to lie about any information, especially about your income on a mortgage loan to increase your chances of approval. Any sort of lying on any loan form is classified as fraud and is a criminal act. Besides if a lender does encourage you to do such a thing, use your common sense, if they give you the leeway to do it, then they will probably have no problem committing fraudulent acts upon you.

3. Beware of interest rates that are amazingly low or incredibly high. Low interest rates can be very tempting, especially when they beat everyone else by two or three percent. You may think that this will save you money, but in the long run it will only cost you more because most loans with a low interest rate like these tend to increase significantly throughout the time line of the loan. People with a less than perfect credit rating usually fall needlessly victim to high interest rates that are usually two or three percent higher than everyone else. There are many places online that offer to check interest rates against your credit and can give you an accurate estimate of how much you should be paying.

4. Be aware if you feel pressured into applying for a mortgage loan that you don’t understand, can’t financially afford or if you are told that you are only going to get the loan through that certain company. If you do feel unsure of anything with a loan, ask them to explain it to you in detail or go to someone else who you can trust. You may want to speak with a lawyer and ask them to go through the loan with you. If you are being pressured to go with a certain company for a loan, then don’t do it. If they can offer you a loan then so too will other companies and without all of the pressure.

When seeking a mortgage loan, make sure that the contract does not differ from the original contract. Companies that ask for more signers, credit insurance, or prepayment penalty fees are probably looking for ways to make money off of you and don’t have your best interest in mind. In this case, you should take your business else where.

These are just some of the things you should look out for when mortgage loan hunting so you are not caught in a trap by a corrupt company. If you are ever in doubt, don’t use the company, as there are many more to choose from that will be happy to take your business and will offer you assistance with anything you are unsure of.

The Jones’ family found their dream home and moved into it with all of the excitement and enthusiasm of a kid on Christmas morning. After a long and hectic day of unpacking, they collapsed into bed anticipating a good night’s rest. Unfortunately, they were shocked and dismayed when they began to hear the very obvious noise of trucks roaring along the inter-state highway situated less than a half mile to the rear of their home. Too late!

This unfortunate situation exemplifies the need to focus on location when contemplating the purchase of a home. A ten million dollar mansion isn’t worth a dime if it’s sitting next to a toxic waste dump. This example is far-fetched and outrageous, but it makes the point that finding the right location is certainly as important as finding the right house.

How do you investigate a potential neighborhood? There are a number of factors and issues to be considered in your evaluation. Some of them can be covered merely through visual observation; others will have to be explored with the assistance of community and government organizations.

One of your first and most significant concerns should be the crime rate. If every other house on the block is being burglarized every other month, you might want to look elsewhere. Talk to a spokesperson of the local law enforcement agency. Ask for a listing of their monthly crime stats and a copy of their year ending report. When talking to the spokesperson about crime rates, ask about their response times in your area. If it’s over five minutes, ask why. If the community has a neighborhood watch group or a neighborhood citizens’ security patrol, attend one of their meetings or speak with their group representatives.

How far is your new neighborhood from your place of employment? How far is too far? Bottom line: check the driving time and traffic patterns, both coming and going, by driving the route you’ll take. Are there any activities or facilities in the area that will make the trip more unpleasant or time consuming on specific days of the week? As an example, is there a bridge that backs up on Friday afternoons as people rush to their weekend retreats?

If you have children, or anticipate having them, you’ll want to check out the schools in the area. Visit the schools and talk to the Principals or school counselors. Ask about class sizes, bus service, curriculum and even school menus. If your child is a gifted student, you’ll want to inquire about accelerated courses. If your child needs special Ed opportunities, ask about them. Knowing about your child’s school is one of your primary responsibilities as a parent.

This may sound a bit picky, but you should visit and evaluate your local markets, shops and restaurants. Do they sell quality products? Is there a convenient place to purchase daily necessities such as milk, luncheon items, coffee, etc.? Do the local restaurants suit your taste? The answers to these questions may not factor substantially into your moving decision, but they are part of the equation and should at least be recognized and considered.

Availability of community services should not be overlooked. Is there a good hospital in the immediate vicinity? Do they have an emergency room? How about parks and a library?

You should visit the neighborhood at various times of the day and night to check for sounds, smells, heavy traffic and the presence of any activities that you might find offensive as a resident. Sometimes the complexion of a neighborhood changes at night. Drive around after dark and look for the presence of undesirables lounging about in public places. Try to get a sense and feeling of the neighborhood.

Finally, you will want to find out if the community has a community association. If so, visit the association and ask about membership dues, restrictions and covenants. If the representative is forthcoming, ask if there are any problems in the area that you as a prospective new resident should consider.

You are about to make one of the biggest financial decisions of your life. Don’t be timid. Ask questions, make notes and weigh all the pro’s and con’s before deciding.

Buying a home represents the most significant financial decision most people will ever make during their lifetime. From a person’s first home, which often establishes the foundation for future home purchases, to the purchase of the home where they’ll spend their senior years, there are definite pitfalls to avoid and suggested steps to take to assist one in making the right decisions.

One of the first mistakes people make is not getting pre-approved or pre-qualified by a bank or lending institution. Sellers and their agents are often skeptical of a prospective buyer’s ability to obtain a mortgage loan when the buyer has not been pre-qualified. When choosing between two comparable offers, or when contemplating countering a buyer’s offer, a seller will always look more favorably upon the pre-qualified buyer.

Employing the services of a realtor makes great sense, since navigating through the home purchase process is both complex and fraught with financial dangers. However, as the buyer, you should have your own realtor who will be fully committed to representing your best interests. The seller’s realtor will often favor the interests of the seller, with an eye to the commission involved. Your agent will be inclined to do a “comparative market analysis”, which will establish property values and selling prices of homes in the area of your targeted purchase.

Take your time! It happens all too frequently that people rush into signing a contract to purchase a particular home and then for any number of reasons, regret their hasty decision. Remember… if you enter into a contract to buy a home, your chances of rescinding that contract are very slim. It doesn’t help that you’ve found another home you prefer, when you’re under contract to make a purchase you’re expected to follow through and buy it.

In addition to finding a home they like better than the one they’ve contracted to buy, another reason people try to cancel a contract is that they realize too late that they’ve over-purchased. The mere fact that you can qualify to purchase a particular property doesn’t speak the full story. Being “house poor” is the pits. Putting the bulk of your earnings into your mortgage payment obviously detracts from your quality of life. Things you used to enjoy, such as vacation trips, going out to dinner or splurging on an expensive piece of clothing will have to be curtailed.

Some people have specific requirements for their dream home and unfortunately sometimes wait too long for that home to present itself. While waiting for utopia, people pass up excellent homes that are good bargains and would fulfill a majority of their demands. Also, in many cases, market prices and mortgage rates continue to rise.

The potential buyer should be aware that there are many types of mortgages being offered by lenders; therefore, they should explore all of their options before “locking in.” Interest only loans allow the buyer to pay only the interest on their mortgage for a period of usually up to five years. This is an attractive option for young buyers who want to establish themselves in a home of their own, but have not reached their full earning potential. Hopefully and assumedly, at the end of the prescribed 1-5 year period the buyers will be better able to meet full mortgage payments. All other options should be explored as well.

Failing to require a comprehensive home inspection, or relying on the knowledge of a friend, is a penny-wise/pound-foolish thing to do. The relatively minor expense of the full inspection is definitely cost-effective. The inspection should include a review of electrical system, condition of the roof, plumbing, heating and air conditioning, septic system, water quality, etc. etc. etc. This is a very important process that can save untold heartache in the future.

When selecting a home, don’t forget that your quality of life in that home extends into the surrounding community. Your new home can be a showplace, but if it’s surrounded by run down properties and neighbors who don’t fit into your preferred social structure, you aren’t going to be happy. Be sure that the school system meets with your approval; inquire about the crime rate and consider the quality of the stores and services available in the area.

Sometimes it’s hard to look into the future, but when buying a home it’s good to think about resale value. Not that this should be the final consideration, but when touring your prospective new home you should look for things that would be a deterrent to another buyer.

Finally, before signing the contract you should be aware of any restrictions imposed by your new community association. Such restrictions can include: fencing guidelines, parking restrictions (no RV’s in the driveway), no boats in the yard, landscaping requirements, and even certain occupancy restrictions. Blindly buying into a heavily restricted community is a very common mistake.

The ten common buying errors mentioned here are by no means an exhaustive list of things to avoid. Buying a home should be done systematically and carefully. Checklists are available from reputable realtors and should be consulted and utilized throughout the searching and buying process.