Investment in Real Estate is indeed very profitable and the sooner you get to buy a property the better it is for in terms of investment point of view. Moreover, the price of Real Estate is quite favorable these days, which make Real Estate investment, be it residential or commercial, very tempting. One must however realize that there are significant risks involved in a Real Estate transaction and all the details pertaining to the property as well as the agent need to be thoroughly verified.
First of all, in this market there are agents who are neither licensed nor bonded, and there could be many who do not know the market well and do not even care to check if the property they are trying to sell is problem-free. A number of them are fakes; there have been many instances where the agent has fled with the down-payment cash he received from the buyer or the seller, whomever he is serving. Property buyers or sellers are therefore advised to use an escrow or third party services of similar nature. Stewart Title in Houston and Fidelity Title in New York offer escrow services. These agencies hold your money in one of the US accounts until funds are disbursed based on your offer terms and conditions.
Secondly, you must check the title of the property before finalizing a deal. Nowadays a large number of properties have title problems. You may also hire an attorney to get you title clearance of a particular property. Also check whether the seller has a US title clearance and a Fideicomiso. If he doesn’t, there are possibilities that the land or property has title issues. However, even if the seller has a Fideicomiso, it doesn’t guarantee clear title of the property. You need to therefore play safe and get title insurance. But then, even this is risky. You may have applied for the insurance and paid a lump some to your agent for the same purpose, but it may happen that you never receive those insurance papers. By dealing through the escrow agents, you can however avoid this problem. These escrow agents are recommended by the genuine Real Estate agents and enjoy attractive incentives to ensure that your cash is disbursed righteously and you deal hassle-free.
Third, the deal closure is both complicated and expensive. Foreigners buying properties near coastal regions or borders are required to obtain a permit for foreign investment and hold the land/property title through a bank trust (the earlier discussed Fideicomiso). These trusts for doing the necessary services charge about $300-500 annually. This amount is very well mentioned in your trust documents, therefore, ask your agent to shop around to get the best possible deal. Moreover, there is a huge transfer tax. You may be expected to pay nearly $7,000 as closing fees, which cannot be recovered while selling that property. There is no point underreporting the transfer values because that would be considered illegal and huge fines can be imposed if caught. If you do this or allow the seller to do this, then you will be yourself accountable for the seller’s capital gains. It is simple, if the seller doesn’t pay the stipulated capital gains, then you are liable to pay the same. You need to therefore mention in your contract that the seller doesn’t receive any money from your end until he has paid all his capital gains.
An option gives you the right of buying and selling. It however need not be an obligation to accomplish a deal. You can always choose to let the expiry date of the option go, after which the option has no value. If you let the period expire, you let go the entire amount that you invested to book the asset. The underlying assets in most cases are either stock or index funds.
Options are classified as ‘calls’ and ‘puts’. ‘Call’ refers to the right of the holder to buy an asset within certain period at a particular price; ‘calls’ have a long position on the stock. ‘Call’ buyers hope that the prices of the stock in which they invested increase rapidly before the expiry of the option.
A ‘put’ is the right of the buyer to sell an asset within certain period at a particular price; ‘puts’ have a short position on the stock. ‘Put’ buyers hope that prices of the stock decreases rapidly before the expiry of the option.
There are several advantages of choosing right options. An investor must use options specifically to speculate and hedge.
Speculation: When you are speculative, you do not make profits only when the market is buoyant, but also when it is down. Speculation efficiently enables you to track the direction in which the stock is moving and determine the movement’s timing and magnitude. Consequently, you get a fair idea about how much is the stock’s price likely to change and within what time frame. Hence, there are chances of your predictions being right and you make really big bucks.
When you are a large institution and control as large as a hundred shares with one contract, you are bound to book substantial profits with the slightest upward movement in process. With the right options you are sure to hit big time.
Hedging: Options offer excellent hedging mechanisms that serve almost like an insurance policy for the underlying stock. You can insure your stock against any downturn in the market just as you can insure any other asset of yours such as car, house, and even your life.
In financial terms, hedge refers to an investment that is made to minimize the potential risks in another investment. Hedging means a strategy that is specifically designed to limit a stock’s exposure to any sort of business risk, while allowing the business to continue to reap benefits from the investment.
A hedger may invest in a security that, according to him, is under-priced in relation with its fair value, and then combine it with a short sale of one or more related securities. The hedger, therefore, is concerned only with under-priced security and its appreciation in relation with the market.
Some risks are inherent for specific businesses and are inevitable. For instance, fluctuations in oil prices are inevitable for oil companies, as the price of crude is benchmarked to international prices. However, other risks are unwanted and must be hedged; for instance, inventory in a shop must be hedged against fire or any other disaster through a fire insurance or other suitable contracts.
Hence, choose the right options to limit the downside and leverage on the upside of your securities.
Williamking has sinced written about articles on various topics from Real Estate, Property Investment and computers and the internet. William King is the director of Daily Trader: , Pakistan Property & Real Estate Portal:. Williamking's top article generates over 110000 views. to your Favourites.