Articles

Determine Level of Liquidity - Lets say you need cash right away. The Investments Level of Liquidity will be measured by your ease or ability to quickly convert the investment into cash, with still maintaining your original level of principal. Consider a savings account. It is highly liquid. In contrast, real estate is considered to have low liquidity because of 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 - marketability is the ability to convert an investment into cash quickly, at any price. 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 brokerage fees and marketing fees. 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.

Determine the Impact of Leverage - leverage is the use of borrowed 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 low loan-to-value would result in low leverage, while a high loan-to-value would result in high 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.