Real Estate investing can be simply described as investing in property dealings. It includes buying some property, not for living purposes, but to trade it further and earn income. Real estate investing is considered the best long-term investment, and a lot of people are associated with this business. This sale and purchase of land, houses, buildings, etc. for capital gains are some of the most popular investments in the world.
TYPES OF REAL ESTATE INVESTMENT
- Residential Real Estate
This type of real estate consists of dealings of homes used for residential purposes. They can be a two-room flat, or a portion, a guest house, or a bungalow. Residential Real Estate investors can earn money by obtaining rent from tenants, or can simply sell the property. The returns work on the appreciation of property. The idea is to buy a property, and resale it when prices go high.
Real Estate Investment Trusts are the companies that work in the real estate sector. These companies own hotels, malls, etc. (commercial real estate), and earn by renting out these properties. An investor can invest in the stocks of these companies, and he becomes part of the real estate business ran by the company. REITs return 90% of their taxable returns, so being their shareholder is a really good investment. This type of real estate investing is best in terms of liquidity, making it one of the most popular real estate investments.
- REITs
- Commercial Real Estate
- Land
BENEFITS OF INVESTING IN REAL ESTATE
Following are the benefits of real estate investment.
- Passive Income and Cash Flow
Real Estate investment can be a really good source of passive income along with a reliable job due to its really good returns. The average return on real estate in Pakistan is around 14.6%, way more than what the experts view as an exemplary figure (8%). This means that investing in real estate can increase the number of leisure hours and activities one can afford. Moreover, rental properties can give a positive cash flow to the investor. A cash flow is a difference between a property’s income and its expenses. A positive cash flow is a glad tiding of high returns. A person with experience and a diversified portfolio can also make it a permanent source of income, a brand new career!
- Possession of an Asset
A real estate investor gets a solid asset to his name. He can use that asset for his personal use in the future. This asset increases his net worth and can be passed over to his generations. Therefore, the property a real estate investor invests in can provide him with a considerable source of income through rents, and can serve for his personal use whenever he feels the need.
- Protection from Inflation
A real estate investment remains unaffected to a great extent by inflation. The prices of property tend to increase now and then. Therefore, inflation is a tenant’s problem and not the landlord’s. Whenever a country faces economic instability resulting in inflation, rents usually rise. So we can say that real estate investors are good friends with inflation.
DRAWBACKS OF INVESTING IN REAL ESTATE
- Requirement of Capital in abundance
Investing in real estate is not something you think about one day and do the other day. This type of investment requires a lot of capital. Reserve cash, down payments, mortgage loans… all in all, a real estate investor needs to have heaps of cash in his bank account. In this type of investment, you cannot afford to run out of cash at any point. Renting a property also requires advertisement costs and most importantly fixing costs, which may be sometimes more than the rent itself.
- Low Liquidity
One of the biggest drawbacks of investing in real estate is its low liquidity (apart from REITs). Investing in real estate can make you a holder of an asset, but deprives you of urgent cash you may need at any point. The money invested in these properties is very hard to retrieve as selling and transaction processes take a longer time.
- It Consumes Time
Real Estate investment requires patience, well a lot of it. The prices of properties may not rise at an expected time, forcing the investor to hold on for a longer time. Other than that, buying, selling, payment, transaction, fixing and all the processes require ample time to complete. It is really hard to manage if an investor is doing a job side by side.
IMPORTANT TIPS BY THE AUTHOR
A good real estate investor is hardworking, dedicated, and to some extent, street smart. If you want to stamp your foot on the grounds of real estate investment, acquire the basic knowledge first. Do your research! Read articles, follow and listen to successful real estate investors and read books. Some really good books can inspire you and guide you on the right track in beginning your investment diary. My personal favorite is The Millionaire Real Estate Investor by Gary Keller. You can buy the book through the link provided.
Create your aims and goals and research everything you can on your desired area of real estate investing. Once you feel you are good to go, get started.
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