Real estate means immovable property, such as land, and everything else that is permanently attached to it, such as residential buildings, malls, factory sheds etc. When you acquire real estate you also acquire the rights of possession, control and transfer.
Real estate investment involves buying of property with an aim to generate income through rental or lease and to achieve capital appreciation at the same time.
Understanding real estate investment is crucial because it usually involves a much higher investment than while investing in bonds, shares, gold or even a piece of art.
There are different ways of participating in real estate investment. You can buy a house/flat with an aim to rent the property out to a tenant. You will earn a continuous stream of rent from the tenant, but you will be responsible for paying taxes and the costs associated with maintaining the property. You will benefit from capital appreciation (a rise in the value of the property over time). You will run the risk of not finding a tenant and could suffer negative monthly cash flows with mortgage payments and maintenance charges.
Before purchasing a property one must keep in mind, the location, value and researching the title of the property.
One of the biggest advantage of investing in real estate is you will get bank loans at attractive rates. This is the only investment that you can make on borrowed money not only on very attractive rates and low margin (70-80% of the value can be obtained as loans), but you can get tax benefits too. Banks will not loan you money to buy shares, gold or any other investment at such low margins and low rates. Finally, the best argument for appreciation of real estate is perhaps the earth is getting no bigger while the population is increasing by the second.
Real Estate trading. Real estate traders generally purchase properties when a project is launched and thus can get the best deal in terms of price as well as the location of the unit. As the apartment complex comes nears completion, the trader generally sells off his/her unit and make a substantial gain. The risks involved in such trades are the apartment may take more time than anticipated and thus a higher lock-in period.
REITs or real estate investment trust is a corporation that invests in real estate. REITs can be equity REITs, mortgage REITs or hybrid REITs. REITs trade on major exchanges. A REIT uses investors' money to acquire and operate properties. As of now REITs are not yet available in India but will be available sooner than later.
The benefits of REITs are: REITs provide regular income in the form of dividends. Investors gain exposure to non-residential investments (like malls and office buildings). REITs are highly liquid and traded in the exchanges.
Like any other investment, before making an investment in real estate, you need to evaluate your risk appetite and investment capacity.
2 comments:
very well written post.
Very informative and educative at the same time
Hey discussion . I learned a lot from the info . Does anyone know if my business would be able to acquire a blank a form form to fill out ?
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