Many investors are turned off by real estate because they do not have the time or inclination to become landlords and property managers, both of which are in fact, a career in themselves. If the investor is a rehabber or wholesaler, real estate becomes more of a business rather than an investment. Many successful property “investors” are actually real estate “operators” in the real property business. Fortunately, there are other ways for passive investors to enjoy many of the secure and inflation proof benefits of real estate investing without the hassle.Active participation in property investing has many advantages. Middlemen fees, charged by syndicators, brokers, property managers and asset managers can be eliminated, possibly resulting in a higher rate of return. Further, you as the investor make all decisions; for better or worse the bottom line responsibility is yours. Also, the active, direct investor can make the decision to sell whenever he wants out (assuming that a market exists for his property at a price sufficient to pay off all liens and encumbrances).Passive investment in real estate is the flip side of the coin, offering many advantages of its own. Property or mortgage assets are selected by professional real estate investment managers, who spent full time investing, analyzing and managing real property. Often, these professionals can negotiate lower prices than you would be able to on your own. Additionally, when a number of individual investor’s money is pooled, the passive investor is able to own a share of property much larger, safer, more profitable, and of a better investment class than the active investor operating with much less capital.Most real estate is purchased with a mortgage note for a large part of the purchase price. While the use of leverage has many advantages, the individual investor would most likely have to personally guarantee the note, putting his other assets at risk. As a passive investor, the limited partner or owner of shares in a Real Estate Investment Trust would have no liability exposure over the amount of original investment. The direct, active investor would likely be unable to diversify his portfolio of properties. With ownership only 2, 3 or 4 properties the investor’s capital can be easily damaged or wiped out by an isolated problem at only one of his properties. The passive investor would likely own a small share of a large diversified portfolio of properties, thereby lowering risk significantly through diversification. With portfolios of 20, 30 or more properties, the problems of any one or two will not significantly hurt the performance of the portfolio as a whole.Types of Passive Real Estate InvestmentsREITsReal Estate Investment Trusts are companies that own, manage and operate income producing real estate. They are organized so that the income produced is taxed only once, at the investor level. By law, REITs must pay at least 90% of their net income as dividends to their shareholders. Hence REITs are high yield vehicles that also offer a chance for capital appreciation. There are currently about 180 publicly traded REITs whose shares are listed on the NYSE, ASE or NASDAQ. REITS specialize by property type (apartments, office buildings, malls, warehouses, hotels, etc.) and by region. Investors can expect dividend yields in the 5-9 % range, ownership in high quality real property, professional management, and a decent chance for long term capital appreciation.Real Estate Mutual FundsThere are over 100 Real Estate Mutual Funds. Most invest in a select portfolio of REITs. Others invest in both REITs and other publicly traded companies involved in real estate ownership and real estate development. Real estate mutual funds offer diversification, professional management and high dividend yields. Unfortunately, the investor ends up paying two levels of management fees and expenses; one set of fees to the REIT management and an additional management fee of 1-2% to the manager of the mutual fund.Real Estate Limited PartnershipsLimited Partnerships are a way to invest in real estate, without incurring a liability beyond the amount of your investment. However, an investor is still able to enjoy the benefits of appreciation and tax deductions for the total value of the property. LPs can be used by landlords and developers to buy, build or rehabilitate rental housing projects using other people’s money. Because of the high degree of risk involved, investors in Limited Partnerships expect to earn 15% + annually on their invested capital.Limited Partnerships allow centralization of management, through the general partner. They allow sponsors/developers to maintain control of their projects while raising new equity. The terms of the partnership agreement, governing the on-going relationship, are set jointly by the general and limited partner(s). Once the partnership is established, the general partner makes all day to day operating decisions. Limited partner(s) may only take drastic action if the general partner defaults on the terms of the partnership agreement or is grossly negligent, events that can lead to removal of the general partner. The LPs come in all shapes and sizes, some are public funds with thousands of limited partners, others are private funds with as few as 3 or 4 friends investing $25,000 each.
Home Inspection is defined as the process by which a home inspector observes and provides a written report of the systems and components of a residential building including but not limited to the roof, heating, insulation, air conditioning, windows, electrical wiring, plumbing, drainage along with giving you the confidence you need to complete your transaction and guarantees a fair and smooth closing. It is also important to know what a home inspection is not. It is not protection against future failures, not a guarantee that problems won’t develop after you move in, not an appraisal that determines the value of a home and not a code inspection, which verifies local building code compliance. The inspection is the single most important investment and probably the least costly you can make for your home purchase. It is a visual, functional, non-invasive inspection of the readily-accessible elements conducted without moving personal property, furniture, equipment, plants, soil, snow, ice, or debris. Also one of the smartest ways to educate yourself about the physical condition of a property you want to buy, an inspection, is in the best interest of the buyer, the seller and the agents. It is for your safety, your financial protection as well as your peace of mind by helping you identify potential problems, surveying the property condition, and helps in considering possible repairs and/or updates.The purpose, is for the inspector to find defects for you, so you can present them to the seller and negotiate the price of the house, or a solution to the problem. Normally, the fees are paid for by the buyer, although more and more sellers are retaining the services of a professional before sale negotiations begin. The misconception that construction experience is the only background needed to perform a quality inspection is a common mistake. The National Association of Certified Home Inspectors (NACHI) publishes a Standards of Practice and Code of Ethics that outlines what you should expect to be covered and reported on. When the process is complete, the inspector will issue a report to the home buyer detailing what was found.The standard home inspector’s report will include an evaluation of the condition of the home’s heating system, central air conditioning system (temperature permitting), interior plumbing and electrical systems; the roof, attic, and visible insulation; walls, ceilings, floors, windows and doors; the foundation, basement, and visible structure, so that he/she can plan for needed repairs and upgrades when it is time to make them. You will also find that written reports are easier to understand if you’ve seen the property firsthand through the inspector’s eyes.The whole process will enable you to take control of your real estate transaction and take a measure of your investment decision and experience confidence and peace of mind about your investment and any negotiation. The purpose of a home inspection is to provide a comfort level or to make the buyer aware, and in some cases, a guarantee, that the home you are buying is not about to fall down. A home inspection is critical for knowing the condition of the property you are looking to purchase, however, it should be clearly understood that a buyer’s inspection is not to be confused with an appraisal, a building code inspection, a guarantee of any kind, and/or an insurance policy on the condition of the property, it is designed to help give you “up-front” information so that you can be a well-informed homebuyer.