Property Investment | Real Estate Investment in Pakistan | Plotsoninstallments.pk

  Internal Rate of Return Internal rate of return (IRR) or annualized total return is an annual rate earned on each dollar invested for the period it is invested. It is generally used by most, if not all, investors as a way to compare different investments. The higher the IRR, the more desirable the investment. IRR is one of, if not the most important measure of the profitability of a rental property; capitalization rate is too basic, and Cash Flow Return on Investment (CFROI) does not account for the time value of money. Capitalization Rate Capitalization rate, often called the cap rate, is the ratio of net operating income (NOI) to the investment asset value or current market value. Cap rate = Net Operating Income Price Cap rate is the best indicator for quick investment property comparisons. It can also be useful to evaluate the past cap rates of a property to gain some insight into how the property has performed in the past, which may allow the investor to extrapolate how the property may perform in the future. If it is particularly complex to measure net operating income for a given rental property, discounted cash flow analysis can be a more accurate alternative.

  Cash Flow Return on Investment When purchasing rental properties with loans, cash flows need to be examined carefully. Rental property investment failures can be caused by unsustainable, negative cash flows. Cash Flow Return on Investment (CFROI) is a metric for this. Sometimes called Cash-on-Cash Return, CFROI helps investors identify the losses/gains associated with ongoing cash flows. Sustainable rental properties should generally have increasing annual CFROI percentages, usually due to static mortgage payments along with rent incomes that appreciate over time. Things to Keep in Mind Generally, the higher an investment's IRR, CFROI, and cap rate, the better. In the real world, it is very unlikely that an investment in a rental property goes exactly as planned or as calculated by this Rental Property . Making so many financial assumptions extended over long periods of time (usually several decades) may result in undesirable/unexpected surprises. Whether a short recession depreciates the value of a property significantly, or construction of a thriving shopping complex inflates values, both can have drastic influences on cap rate, IRR, and CFROI. Even mid-level changes such as hikes in maintenance costs or vacancy rates can affect the numbers. Monthly rent may also fluctuate drastically from year to year, so taking the estimated rent from a certain time and extrapolating it several decades into the future based on an appreciation rate might not be realistic. Furthermore, while the appreciation of values is accounted for, inflation is not, which might distort such large figures drastically.

  Other Types of Real Estate Investments Aside from rental properties, there are many other ways to invest in real estate. The following lists a few other common investments. REITs Real Estate Investment Trusts (REITs) are companies that let investors pool their money to make debt or equity investments in a collection of properties or other real estate assets. REITs can be classified as private, publicly traded, or public non-traded. REITs are ideal for investors who want portfolio exposure to real estate without having to go through a traditional real estate transaction. For the most part, REITs are a source of passive income as part of a diversified portfolio of investments that generally includes stocks and bonds. Buy and Sell Buying and selling (sometimes called real estate trading) is similar to rental property investing, except there is no or little leasing out involved. Generally, real estate is purchased, improvements are made, and it is then sold for profit, usually in a short time frame. Sometimes no improvements are made. When buying and selling houses, it is commonly called house flipping. Buying and selling real estate for profit generally requires deep market knowledge and expertise.

 Wholesaling Wholesaling is the process of finding real estate deals, writing a contract to acquire the deal, and then selling the contract to another buyer. The wholesaler never actually owns the real estate. Investment property is land or a building (including part of a building) or both that is: held to earn rentals or for capital appreciation or both; not owner-occupied; not used in production or supply of goods and services, or for administration; and not held for sale in the ordinary course of business. Investment property may include investment property that is being redeveloped.

 An investment property is measured initially at cost. The cost of an investment property interest held under a lease is measured in accordance with IAS 17 at the lower of the fair value of the property interest and the present value of the minimum lease payments. For subsequent measurement an entity must adopt either the fair value model or the cost model as its accounting policy for all investment properties. All entities must determine fair value for measurement (if the entity uses the fair value model) or disclosure (if it uses the cost model). Fair value reflects market conditions at the end of the reporting period. Under the fair value model, investment property is remeasured at the end of each reporting period. Changes in fair value are recognised in profit or loss as they occur. Fair value is the price at which the property could be exchanged between knowledgeable, willing parties in an arm’s length transaction, without deducting transaction costs (see IFRS 13). Under the cost model, investment property is measured at cost less accumulated depreciation and any accumulated impairment losses. Fair value is disclosed. Gains and losses on disposal are recognised in profit or loss. Standard history In April 2001 the International Accounting Standards Board (Board) adopted IAS 40 Investment Property, which had originally been issued by the International Accounting Standards Committee in April 2000. That Standard had replaced some parts of IAS 25 Accounting for Investments, which had been issued in March 1986 and had not already been replaced by IAS 39 Financial Instruments: Recognition and Measurement.

  In December 2003 the Board issued a revised IAS 40 as part of its initial agenda of technical projects. In January 2016, IFRS 16 Leases made various amendments to IAS 40, including expanding its scope to include both owned investment property and investment property held by a lessee as a right-of-use asset. In December 2016, the Board issued Transfers of Investment Property (Amendments to IAS 40) which clarifies when there is a transfer to, or from, investment property.

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 Buying and owning real estate is an investment strategy that can be both satisfying and lucrative. Unlike stock and bond investors, prospective real estate owners can use leverage to buy a property by paying a portion of the total cost upfront, then paying off the balance, plus interest, over time. Though a traditional mortgage generally requires a 20% to 25% down payment, in some cases, a 5% down payment is all it takes to purchase an entire property. This ability to control the asset the moment papers are signed emboldens both real estate flippers and landlords, who can, in turn, take out second mortgages on their homes in order to make down payments on additional properties. Here are five key ways investors can make money on real estate. KEY TAKEAWAYS Aspiring real estate owners can buy a property by using leverage, paying a portion of its total cost upfront, and paying off the balance over time. One of the primary ways in which investors can make money in real estate is to become the landlord of a rental property. People who are flippers, buying up undervalued real estate, fixing it up, and selling it, can also earn income. Real estate investment groups are a more hands-off way to make money in real estate. Real estate investment trusts (REITs) are basically dividend-paying stocks. 1:40 5 Simple Ways To Invest In Real Estate

  Rental Properties Owning rental properties can be a great opportunity for individuals who have do-it-yourself (DIY) renovation skills and the patience to manage tenants. However, this strategy does require substantial capital to finance upfront maintenance costs and to cover vacant months. Pros Provides regular income and properties can appreciate Maximizes capital through leverage Many tax-deductible associated expenses Cons Managing tenants can be tedious Potentially damage property from tenants Reduced income from potential vacancies \

  According to U.S. Census Bureau data, the sales prices of new homes (a rough indicator for real estate values) consistently increased in value from the 1960s to 2007, before dipping during the financial crisis. 1 Subsequently, sales prices resumed their ascent, even surpassing pre-crisis levels. 2 3 The long-term effects of the coronavirus pandemic on real estate values remain to be seen. Sales prices of new homes chart Source: Survey of Construction, U.S. Census Bureau Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).

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  4 Real Estate Investment Groups (REIGs) Real estate investment groups (REIGs) are ideal for people who want to own rental real estate without the hassles of running it. Investing in REIGs requires a capital cushion and access to financing. REIGs are like small mutual funds that invest in rental properties. 5 In a typical real estate investment group, a company buys or builds a set of apartment blocks or condos, then allows investors to purchase them through the company, thereby joining the group.

  A single investor can own one or multiple units of self-contained living space, but the company operating the investment group collectively manages all of the units, handling maintenance, advertising vacancies, and interviewing tenants. In exchange for conducting these management tasks, the company takes a percentage of the monthly rent. A standard real estate investment group lease is in the investor’s name, and all of the units pool a portion of the rent to guard against occasional vacancies. To this end, you'll receive some income even if your unit is empty. As long as the vacancy rate for the pooled units doesn’t spike too high, there should be enough to cover costs. Pros More hands-off than owning rentals Provides income and appreciation Cons Vacancy risks Fees similar to those associated with mutual funds

  Susceptible to unscrupulous managers House Flipping House flipping is for people with significant experience in real estate valuation, marketing, and renovation. House flipping requires capital and the ability to do, or oversee, repairs as needed. This is the proverbial "wild side" of real estate investing. Just as day trading is different from buy-and-hold investors, real estate flippers are distinct from buy-and-rent landlords. Case in point—real estate flippers often look to profitably sell the undervalued properties they buy in less than six months. Pure property flippers often don't invest in improving properties. Therefore, the investment must already have the intrinsic value needed to turn a profit without any alterations, or they'll eliminate the property from contention. Flippers who are unable to swiftly unload a property may find themselves in trouble because they typically don’t keep enough uncommitted cash on hand to pay the mortgage on a property over the long term. This can lead to continued, snowballing losses.

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  There is another kind of flipper who makes money by buying reasonably priced properties and adding value by renovating them. This can be a longer-term investment, wherein investors can only afford to take on one or two properties at a time. Pros Ties up capital for a shorter time period Can offer quick returns Cons Requires a deeper market knowledge Hot markets cooling unexpectedly Real Estate Investment Trusts (REITs) A real estate investment trust (REIT) is best for investors who want portfolio exposure to real estate without a traditional real estate transaction. A REIT is created when a corporation (or trust) uses investors’ money to purchase and operate income properties. REITs are bought and sold on the major exchanges, like any other stock. 6 A corporation must payout 90% of its taxable profits in the form of dividends in order to maintain its REIT status. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed on its profits and then have to decide whether or not to distribute its after-tax profits as dividends. 7 Like regular dividend-paying stocks, REITs are a solid investment for stock market investors who desire regular income. In comparison to the aforementioned types of real estate investment, REITs afford investors entry into nonresidential investments, such as malls or office buildings, that are generally not feasible for individual investors to purchase directly. More importantly, REITs are highly liquid because they are exchange-traded trusts. In other words, you won’t need a real estate agent and a title transfer to help you cash out your investment. In practice, REITs are a more formalized version of a real estate investment group.

 Finally, when looking at REITs, investors should distinguish between equity REITs that own buildings and mortgage REITs that provide financing for real estate and dabble in mortgage-backed securities (MBS). Both offer exposure to real estate, but the nature of the exposure is different. An equity REIT is more traditional in that it represents ownership in real estate, whereas the mortgage REITs focus on the income from real estate mortgage financing. Pros Essentially dividend-paying stocks Core holdings tend to be long-term, cash-producing leases Cons Leverage associated with traditional rental real estate does not apply Online Real Estate Platforms Real estate investing platforms are for those who want to join others in investing in a bigger commercial or residential deal. The investment is made via online real estate platforms, which are also known as real estate crowdfunding. This still requires investing capital, although less than what's required to purchase properties outright.

 Online platforms connect investors who are looking to finance projects with real estate developers. In some cases, you can diversify your investments with not much money. Pros Can invest in single projects or portfolio of projects Geographic diversification Cons Tend to be illiquid with lockup periods Management fees Why Should I Add Real Estate to My Portfolio?