How Real Estate Investment Trusts (REIT) Work

Perhaps you got some advice from a well-meaning relative that you should invest in real estate, or maybe you have been following the trends of the economic recovery and you are ready to diversify your portfolio. Whatever your reason, you probably have only considered residential real estate options, but what about commercial properties? There are some interesting reasons you should if you haven’t already. For one reason, commercial property is relatively low in terms of investment risk, especially when compared to stocks. The recent 1,000 point dive/400 point climb by the Dow Jones Industrial Average highlights the volatility of the stock market. Unless you are in love with rollercoasters, owning property is a more sensible option. The income you can derive from property is often quite significant, and leases are steady income free from the fluctuations of the market. You will often be able to realize much more income than a stock portfolio can afford you also.

It is located fairly below the hurricane prone area, so there are no reasons to worry about escaping to a place of safety every year during the hurricane season. It has a diverse and appealing landscape. With a coastline measuring more than 1,500 miles along the Pacific as well as the Caribbean, the country boasts some of the most pristine private beaches in the world. Another geographical prize: the beautiful remains of volcanoes that become extinct thousands of years ago. If you are sick of the hectic and tiring city life but are not daring enough to move to the Himalayas then Panama real estate is just the thing for you. It offers the best of both worlds. You can be free of all the pressures of life that you would otherwise have to face in the US, while still having almost the same lifestyle. It is a democratic and politically stable country and a significant percentage of the local population understands and speaks English. Panama real estate is considerably affordable, especially when compared with Canada and the Northern US states.

A common scenario is that an equity investor will front all the money for a deal, but do none of the work. The borrower will do 100% of the work, and then at the end, the lender and the borrower will split the profit 50/50. Sometimes the equity investor will be involved in the actual deal, and oftentimes the split isn’t 50/50, but the gist of the equity investment is the same — a partner injects money to get a portion of the profits. Benefits: The biggest benefit to an equity partner is that there are no “requirements” that the borrower needs to fulfill to get the loan. If the partner chooses to invest and take (generally) equal or greater risk than the borrower, they can do so. Oftentimes, the equity investor is a friend or family member, and the deal is more a partnership in the eyes of both parties, as opposed to a lender/borrower relationship. Equity partners are generally entitled to a piece of the profits, maybe even 50% or more. While the investor doesn’t generally need to pay anything upfront (or even any interest on the money), they will have to fork over a large percentage of the profits to the partner. This can mean even smaller profit than if the investor went with hard money or some other type of high-interest loan. Equity partners may want to play an active role in the investment. While this can be a good thing if the partner is experienced and has the same vision as the investor, when that’s not the case, this can be a recipe for disaster.

Real estate agents are a dime a dozen, especially in the market today. If the home is in foreclosure, offer at least 20 percent less than the asking price. How Long Has The Home Been On The Market? A few years ago, a home that was on the market for several months was either priced too high or there was something significantly wrong with the home. Nowadays, homes stay on the market for 90 days as a matter of routine. Never make a really low offer on a home that is fresh on the market unless you know the home is in foreclosure or about to become foreclosed upon. Feel free to make low offers on those homes that have been on the market for a month or so. Those that have been on the market for a year are owned by people who are willing to wait out the storm and will most likely not be sold for a low price. Why Is The Owner Selling? You can find this out by directly asking or looking around. If the home is in a state of disrepair, chances are that there are financial problems. You can offer a significant amount less. If the owner has another home that they are buying, you can also offer less. Make sure you do your homework and do not be afraid to invest during a real estate recession. Contrary to what you may have heard, this is the best time to buy a home.