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Real estate is an established investment industry. It refers to property that is immovable, such as land. A person acquires control, transfer and possession rights when he/she acquires real estate. Real estate investment aims at generation of income through lease or rental thereby achieving capital appreciation. It is a long term investment which demands thorough understanding. The industry can be very unpredictable most of the times. There are different ways in which an investor can participate.
Rental:
Rental investment can be preferred when on wants to rent his/her property. The landlord earns a timely income in the form of rent. But he is the sole person who pays the mortgage, taxes or any other costs that is spent to maintain the property. The landlord also benefits from land or capital appreciation. Capital appreciation is the rise in the property as time goes by. He should bear the expenses of mortgage payments, taxes and maintenance expenses all by himself if he does not find a tenant. This will be a negative monthly outflow of cash for him. Rental investments demand a patient and hardworking landlord. He will be expected to allocate significant amount of effort and time to reap long term benefits from his property. This is why owning bonds and stocks are easier options of investment.
Groups:
Investment groups work like small mutual funds. They involve rental properties. It is an organization that buys or builds a cluster of properties and then tries to sell them as rental properties to investor. They find tenants and handle the maintenance of the property. For this the organization receives a share of the rental proceeds.
Trading:
Trading is purely done to obtain profits. Real estate traders sell properties after holding them for a short span of time in order to reap profits on their investments. This is known as flipping properties. They hold propertied for less than four months. Depending on the value of land that is more profitable, they decide to sell the property. They aim at buying hot properties or undervalued ones. They might or might not improve the property with a considerable sum of amount. Some properties may require a facelift than others. This kind of investor trader can fall deep during bear market. This is because the investments done in huge amounts.
Trusts:
Trusts such as REIT (Real estate investment trust) work as a corporation, where investments in real estate are made. They trade on exchanges. They use the investor’s money to operate and acquire properties. The benefits that REIT offers are listed below:
* They provide regular income.
* Investors are exposed to non-residential investments, like, malls and commercial buildings.
* They are highly liquid.
* They distribute 90% of their income that is taxable in dividend form to its shareholders, in the name of law.
An investor’s capacity should be evaluated before participating in real estate.
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