Why Invest in Real Estate – Capital Requirements

Tuesday 18th January 2011 4:44pm

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The purpose of this article is to explain the capital requirements of real estate investment.

 

Buying some shares in a company can be achieved with the investment of just a few hundred dollars. And you can start a bank account with just a few cents, so what is the capital requirement of investing in real estate?

 

Most real estate investments require a far greater initial outlay than other investment options.

While a mortgage is a loan that ensures you do not have to have every dollar of the asking price available in order to purchase real estate, in order to be granted a mortgage loan you usually have to present a deposit and proof of income information to convince the lender you will meet your mortgage repayments.

 

The good news for most Australians is that these days you can make the repayments on many mortgages for the same price you would fork out to rent a similar property -- making the prospect of seeking approval for a mortgage a lot less daunting.

 

While most have heard of the great returns involved with real estate investment -- the initial outlay to buy your first property will sometimes deter the nervous investor from taking the plunge into property. 

 

Luckily there are several types of loans available these days that do not require a large deposit or rigid proof of income. These loans are often referred to as no deposit or low doc loans, and will be explained in a later module.

 

The trick is if you decide real estate investment is the way to go for you, you should be prepared to be in it for the long haul.

Like the share market, the property markets goes through ups and downs and most people who make money out of real estate do so by holding onto properties over a long-term period.

 

There is more good news too.

 

The hardest part of breaking into property investment is buying your first piece of real estate. As long as you make the right decision when you do this, you can generally move upwards on the real estate investment ladder quite smoothly from here. This phenomenon is because of a little friend of ever real estate investor -- Equity.

 

Equity is your greatest leverage.

 

If the first property you buy is a "bargain" you may very well have paid less than it is worth in the market or a surge in the market may see you earn almost instant equity -- i.e. the difference between the amount you owe on the property and its salable value in the market.

 

Equity in one property can be used as capital leverage for your next buy, and so on and so forth. 

 

Breaking through the initial capital requirement barrier will be your toughest capital problem, but once you meet your friend Equity, you will be able to move forward as a real estate investor with vigor.

 

My Knowledge Tips

1. Most real estate investments require a far greater initial outlay than other investment options.
2. The good news for most Australians is that these days you can make the repayments on many mortgages for the same price you would fork out to rent a similar property
3. Like the share market, the property markets goes through ups and downs
4. The hardest part of breaking into property investment is buying your first piece of real estate
5. Equity in one property can be used as capital leverage for your next buy, and so on and so forth.