Real estate investment can offer high annual return-on-investment for individuals or firms willing to assume risk. Only professional investors with substantial net worth should consider highly leveraged property acquisition. Leverage involves the use of a higher than normal portion of borrowed funds to investor equity. For example, some investors borrow one hundred percent of the property’s purchase price.
Many investors obtain a realtor license in order to evaluate new commercial or residential properties on the market. With cash in hand and/or lender relationships in place, the investor looks for properties selling well below the market value.
When investors buy properties below market, it’s almost certain that renovation or extensive repairs are required to bring the property up to market valuation. The investor must also factor in the carrying costs of borrowed money used to purchase the property when determining how much money he or she will make in the future.
Professional investors have relationships with property appraisers. Once renovations and repairs are made, the appraiser evaluates the property and presents findings to the investor. If the investor’s analysis of the property is accurately assessed, he or she places the home or commercial property on the market for sale. Because the investor is also a realtor in this example, transaction fees are greatly minimized.
Investors with excellent negotiation and analytic skills can make significant profits by investing in undervalued properties. This type of investment can require patience and time, because years make be required to realize returns on investment.