The real estate market is sometimes characterized by unstable behavior. There is an increased demand for real estate properties in the face of limited supply. Prices often soar to high levels at this time. Speculators enter the market, further driving the demand. This state is called a real estate bubble. At one point of time, supply increases and demand decreases. The prices then come down automatically and the bubble deflates. A real estate bubble is not good for buyers as it results in losses. Buyers end up paying more for a property than it’s worth and end up selling for less. So buyers have to learn how to sense a bubble. Here are 5 signs of one as reviewed by DC Fawcett.
- Interest rates When interest rates are lowered, the demand for properties increases. This results in a bubble. Buyers have to look out for a reduction in interest rates. When the interest rates rise even by 1%, the demand comes down and the bubble bursts.
- There is lots of leverage When you take a long-term financing loan, you are actually leveraging your money. The more you pay down cash, the less you are leveraging your money. When the demand for houses increase and the prices soar, there will be more leveraging of money. This increased leverage may be a sign of a bubble as generally in the United States, 45% of transactions are made by paying down cash.
- Prices of houses soar faster than salaries When home prices escalate faster than incomes, then there can be a fizz in the local market. Investors must watch out for this sign. They can consult real estate agents regarding this. Some real estate agents calculate the average income level and employment level and compare it with the price rise for instability.
- Reduction in foreign demand Reduction in foreign demand slows down the international market. Due to decrease in foreign demand, international market prices will soar and this can be a bubble.
- Risky loans
When risky loans are lent, it may be a sign of a bubble. When the market prices soar, more loans are borrowed. An increase in subprime loans and loans with bad credit can be seen during times of bubble.
It’s difficult to identify bubbles. It does not mean that there is a bubble just because there is a price appreciation. A bubble is said to have occurred when there is a price appreciation without the support of factors that drive the value of real estate property. For example: San Fransisco, California is not in a bubble just because prices are high. However these 5 signs towards identifying a bubble have to be watched out for.
REIT ( Real Estate Investment Trust ) is an organization or a company which either owns or finances income-generating real estate. Investors get all types of regular income streams, diversification, and long-term capital appreciation from the REIT. These companies pay the taxable income to the shareholders by way of dividend, for which the shareholders have to pay the tax on dividend income. DC Fawcett suggests the investors to choose the right REIT.
REIT’s are known as total return investments. They provide high dividends and potential for moderate, long-term capital appreciations. They offer
High Dividend Yield
The dividend yield in a REIT is significantly higher than other equities.
Income and long-term growth
REIT provides long term returns apart from the returns from other stocks and bonds
Publicly traded REIT shares can be readily converted into cash as the trading is done in major stock exchanges.
How to choose REIT’s and their financial benefits
An individual might invest in a REIT that is listed on the stock-exchange. They also go to REIT mutual fund or exchange-traded fund. Profitable investment Investors also have the capacity to invest in public non-listed non REITs and private non REITs.
REIT stocks and shares are publicly priced in stock exchange- listed REIT’s like other companies. To assess the investment value of REIT shares, certain aspects are taken into consideration.
- Anticipated Growth in EPS(Earning per share)
- Anticipated total return from stock that is estimated from the price change and the dividend yield.
- Current dividend yields of bonds, utility stocks and other high-income investments.
- Percentage of dividend payout ratios.
- Management quality and corporate structure
REIT’s financial benefits
What is the benefit you get into investing in REIT
The market rewards the companies that consistently pay the dividend and has a growth in earning-per-share ratio and stock valuation metric. You need to make sure that
- The company has the ability to increase its earnings unfailingly.
- REIT management teams are able to reinvest the cash flow quickly and effectively while simultaneously developing other strategies to create new revenue opportunities.
- Strong operating characteristics that uses the strategies for succeeding in competitive markets like effective corporate governance procedures, conservative leverage, acceptable accounting practices and strong tenant relationships.
Earning measurements and ability to pay dividends
You need to compare the amount of dividend for the previous and the current quarter and assess how much the company growth has improved in REIT earnings, which are generated by higher revenues, lower costs, and new business opportunities.
REIT role play in retirement savings
REIT’s are the main aspect when it comes to an investment portfolio and retirement savings. The REIT’s should pay at least 90% of their taxable income to the shareholders by means of dividend, making them a strong income-generating investment.
In the last decade, investors, who has been investing in commercial real estate has switched on to REIT because of its attractive offers.
Many are attracted to real estate business as they have got to know the secrets of becoming wealthy from their friends, relatives, and neighbors. Although it is tedious to find a good buyer, it works out well if you find one.
DC Fawcett suggests many ways like flipping, buying, renovating and reselling the property for gain, purchasing residential and commercial properties & investing in real estate groups.
Read also – what is Flipping?
Any business depends upon the good marketing strategies. Real estate is not an exception. On the contrary, there are more struggles in this type of business, people make mistakes and fail many times. However, that is not the end of the world. You can rise up, despite your failures by learning from your mistakes and experiences. Following are the guidelines to increase your leads.
Your website should have a clear direction for the viewers which enable them to decide about its prospect.
This type of advertising enables the viewers to know that the company or the individual does exist who are dealing in real estate or any other product or services.
A good content attracts a lot of audiences in which you can generate leads. Without the great content, lead generation is impossible
This is the most important and popular way in generating leads. For better results, it is better if your website and SEO is seen in social media. There will be more possibilities to increase traffic.
Many marketers use this source to generate traffic and leads. Testing and segmentation determine whether direct mail is right or not. It solely depends on the individuals how they respond.
Traffic generating content
This is important for getting the viewer’s eyeballs on your website. This increases the audiences, which gets converted into leads. The best ways to generate traffic are:
This is fundamental for any type of business. As far as real estate is concerned, many look at these blogs to see if they can get the property at a reasonable rate.
This encourages the visitors to share their experience with the audiences and helps you in increasing the leads.
Social media post
These posts help you to increase the traffic to your blog.
Online videos enable you to drive the traffic to your blog.
Photos give the clearest picture of your property to the viewers, audiences and online buyers
Just as there are e-books for other products and services, you will find many e-books on real estate investment too.
As a real estate investor, it is important to join real estate clubs and association. This gives you more exposure and experience in this line. If you are new to this business, it gives you the scope to learn from other’s mistakes and experiences.
The above tips are applicable to all businesses.