Real estate is a physical asset but it can be converted into a profitable investment as well. You can have ownership interest or leasehold interest. In ownership interest, you assume all the rights of the land or property. You are responsible for the payment of property taxes or any other losses to the property. But in leasehold interest a tenant comes into action. The landowner generally gives some rights to the tenants in exchange of the monthly rent.
Characteristics of Real estate funds:
- There is no time period. You can sell off the property and get the money whenever you want. You won’t have to wait for a maturity date and so the flexibility is high in this kind of investment.
- Real estate is tangible property. Your acquired property can be seen by your family and friends.
- Real estate is a physical property which will require upkeep. If there is a leaking pipe then you have to fix it. Renovation will be required once the building gets older. You have to address complaints of the tenants so that they do not vacate their flats.
- Before buying a real estate property always make sure that you are buying it at a good location. Different people have different preferences. Your definition of a good location should match with the locals of that area where you are planning to buy the property.
Private and Public Markets for Real estate investment:
- If you are planning for real estate investments then you can opt for two kinds of markets: private and public market. In private market you will buy a chunk of real estate. You will be the owner and you can deal through a property manager. If you think that the cost cannot be handled alone then you can collaborate with partners. This combined purchasing is called pool.
- In public market, you can purchase real estate security. You will just buy shares from those companies that own real estate properties. The company will deal on your behalf and will pay you back in the form of dividends. Whether the price goes up or down, it will automatically affect the share or unit price.
Investing in Equity or Debt
- You can select to invest in Equity or debt. Investing in a debt means you are loaning funds to the purchaser of real estate. In addition to the periodic payments you will also receive a mortgage security amount. You will have a priority interest in the property.
- With Equity investment, you are the owner of the property. You will borrow money from the debt investors. Though equity investment entitles larger profits, you may have to forfeit your rights if at any point of time you are unable to pay the mortgage amount to the debt investor.
Real estate investments have characteristics of both bonds and stocks. Its basic advantage is the consistent income though the value of it can fluctuate. Tenants have a huge role to play. You cannot afford to lose too many tenants as you will always need a steady flow of money to maintain the operating costs. This will again depend on the condition of the leasing market. You will have to adjust the rent according to the market conditions.
Get your property evaluated. You can appoint an appraiser so that you have an idea about the sale price of your property. If it’s more than the price you paid while buying the property then it can be called as a positive capital return. The appraiser generally considers actual sale transactions and market data to label a price. The behavior of the investment sales market is also taken into account.
Justin Foster is a one of the top producing real estate agents in Minneapolis, Minnesota. He has extensive experience in new construction and existing residential properties. His inspiration to succeed is Cornerstone Core Properties. Join him on twitter @IamFosterJustin