Successful investors understand that the asset class does not make you rich. It is the information about an asset class that makes you rich. Investors with consistent access to the needed information could trade off the news and earn a handsome return.
Real estate has one of the most opaque information systems. Relevant information is kept private through official sources. It spreads through the grapevine. You need to have good connections to access such information and reap the benefits. We have listed the different levels of information buyers can expect to receive in this article.
Available Publicly
Real estate markets do not have the same information systems as the stock and bond markets. Partly this is due to the variety of commodities being traded. Stock and bond markets can sell standard items, providing accurate information that allows for decision-making.
Real estate, however, is complex. Buyers must consider many factors, including location, accessibility to amenities, and neighborhood profile. Public information is only sometimes accurate. If you wanted to inquire about property prices in a new area, the newspaper and online advertisements would lower your cost. You can get a better price if you study the market more and become more familiar.
The price discovery process in real estate markets needs to be revised. The result is that public information needs to be more helpful for decision-making.
Practical Information
Next, buyers visit the micro markets where they are interested in purchasing a property. You can find information in magazines and newspapers that will give you a base rate or range of prices. Talking to people who were involved in similar deals in the past can provide this information. These people can accurately assess the market and the sentiment of buyers or sellers. This information is much more valuable than that which can be accessed through impersonal channels like net surfing. This means that it takes more effort to collect it.
Available With Mediators
The next level of information is available with the mediators in the market. A buyer can only gather a certain level of information even if he/she visits the micro market on a regular basis before closing
Market mediators have access to the next level of information. Even if the buyer regularly visits the micro market, they can only get a limited amount of information before closing the deal. They won’t be able to witness multiple values being locked in their neighborhood.
Deals first floated in the media can be very different from the ones that go through after negotiations. Both these types of information are available to mediators. They can access genuine deals and details about the ads that appear in the newspaper.
Available With Bureaucrats
We are not referring to information that is already available on the market at this point. We refer to future announcements that could impact the property’s economic value. These could include plans for development or plans for infrastructure in the area. If a new airport were built 5 miles from your property, you would undoubtedly be more appreciated!
This information is not accessible to the general public. This information is available to lawmakers and bureaucrats before it is made public. They are the ones who make these laws. Those with an unfair information advantage may use this information for their benefit. This is usually because bureaucrats or lawmakers pass the information to their cronies. They then purchase land at the current prices, and when this information is made public, they also sell their land. The principal and their cronies make a handsome profit.
This type of information is sometimes called insider information. This information could lead to a conviction for investing based on having access to this information.
There are many levels of information on the market. The type of information available will determine the amount of money an investor invests in the market and the risk they take. The more information you have, the less chance you can take without worrying about adverse consequences.
The Real Cost of Owning A Property
Laypeople often view the cost of home ownership as a single expense—the property’s purchase price. If we look at the situation, however, home ownership comes with many costs. When budgeting, it is easy to overlook some costs. We have compiled a list of costs most likely to arise in these situations. These are some of the possible investments:
Purchase price
This is the most significant cost associated with real estate investment. We have only invested $100000 if we purchase a home worth $100,000. We answer the question, “How much did it cost to buy it?” with the above number. However, we will see in this article that the common assumption that $100000 is the total cost of the property needs to be corrected.
There are transaction costs associated with purchasing a property. Transaction costs include: Brokerage fees. Processing fees to the bank for the mortgage loan. Legal charges to register the property under the new buyer’s name.
These expenses often need to be considered by first-time buyers. They can quickly rise to between 3% and 5% of the property’s value. Even though the property’s list price is $100000, the actual price paid by the buyer will still be at least $105000
Interest paid
Borrowing money is the most common way to purchase a property today. The new norm is mortgage! Today, it is almost impossible to buy properties with cash down. There are mortgage payments, and there is also an interest component to a mortgage.
A mortgage’s amortization schedule is set up so that banks first collect all interest and then collect any principal remaining. Suppose your monthly payment is $1000; then $900 will be used to pay interest. The mortgage loan borrowers only pay the draw for the first five years. During this time, the principal is not reduced. These expenses can be capitalized, meaning they are not subject to any reduction in principal. The property’s value is multiplied by the cost, and the total weight rises to $100000.