Finance Articles

Calculate the Level of Liquidity the Real Estate Investment will have - You want to establish how easy or difficult it would be to be able to convert the investment into cash without losing any of the principal that you have invested. This is called the liquidity of the investment. Consider a savings account. It is highly liquid. In contrast, real estate is considered to have low liquidity because of the unpredictability of the market value at the time you are ready to sell and the time it takes to sell the property. Some real estate fortunes have been lost by those who overextended themselves and didn't have enough liquidity to weather the natural ebbs and flows in the real estate market.

Establish the Investments Level of Marketability - When it comes time to sell your real estate investment, will you have a buyer that will convert the investment into cash for you at a fair price. This is the measure of marketability Take the example of stocks, stocks can be sold anytime on a stock exchange at the market value. With real estate, not only will you need to deal with market conditions, there will be real costs to consider whenever you sell a property such as marketing fees, brokerage fees and taxes. Those looking to invest in Northern Virginia Homes for Sale should try to invest with a business plan and avoid the marketability risks associated with real estate speculation.

Establish the Investments Impact of Leverage - Leverage is when a purchaser borrows funds to finance a portion of the purchase price of an investment. The ratio of borrowed funds to the total purchase price is known as the loan-to-value (or LTV) ratio. A high LTV would result in high leverage, while a low LTV would result in low leverage. Leverage plays a bigger role in real estate investment than any other form of investing. Sometimes, mortgage debt results in 'negative leverage'. In this case, you should avoid mortgage debt or sell the investment. Other times, mortgage debt results in 'positive leverage' and can enhance your rate of return on investment. When buying a home in Northern Virginia, you should avoid the trap of negative leverage while maximizing the benefits positive leverage.