Real estate investments are real assets that provide rental income, lease income and value appreciation in the long term coupled with inflation.
Even though people lost confidence in the real estate industry, it has been growing and corporations are profiting by adding value to the inflated price, staying afloat. People talking about higher prices are still on the motive of buying a flat or house after families being nucleated.
Real estate investments include:
- Residential real estate,
- Commercial Property,
- Commercial Property as collateral (MBS).
Residential properties are usually houses, Villas, Gated Community, Condominium etc that provides living space for the population with or without the rights to the land on which the buildings are raised. The property can be of any sort, for consumption, for renting or leasing housing properties, when they are registered as an entity maintaining individual estates, they become commercial units. Purchasing a flat, the land belongs to the developer and you own only the unit, which puts a buyer in a situation of no collateral.
Commercial Properties are multi storey office spaces or land for factories, that are leased or left out for rent. Houses purchased for rental income are considered as commercial investments. A large commercial land or buildings set up knee to knee inside a campus is said to be Special Economic Zones (SEZs). Retail investors at any stage cannot afford to buy or maintain these kind of properties because of huge capital investment and long term perspective to witness profits.
Another way of estates helping financial needs is by acting as a collateral for further lending or the property itself acts as a collateral in buying them. The banks and financial institutions lend money confidently as the consumer is contributing 20% or more as a down payment, that guarantees the borrowers will not fail on due payments. Risk is shared and pushes lending institutions to the safer side. Mortgage Backed Securities are built with residential properties as a collateral.
Real estate with no experience, Real Estate Investment Trust is a wonderful investment vehicle that pool fund to purchase, maintain properties, and to produce sustainable returns. REITs are offered in units that trades in equity markets, analogous to ETFs. Retail investors can opt for REIT units to have a pinch of real estate that occupies a fraction of their portfolio. REITs contain the additional risk of the market, chopping off liquidity risk. Real estate or stocks why not buy REITs.
Real estate investing is complex in terms of maintenance, drafting agreements, expecting timely payments and other tax obligations. More than one property for consumption is wealth deterioration and real estate are poor investments that gain no more than 4%, whose return can be substituted effortlessly by a Certificate of Deposit which is a straightforward, easy to understand financial investment.
Real Estate Vs Infrastructure:
|A relatively lower life span||Longer and is pushed more than its expected life span.|
|Usage can be obsolete sometime||Consumers never go without service, Toll collection for highways.|
|Relatively lesser fund to start. Barrier to entry is low.||Only deep pocketed corporate can enter. Barrier to entry is high.|
|Land acquisitions, land rates, legalisation or simple processes.||Built in a greatly densed location for maximum utilisation. Multiple stages of permissions are required.|
Real Estate Vs Stocks:
|Less volatile in nature, might stay the same for a quarter.||More volatile, may miss prices in seconds of delay.|
|Risks are known.||Markets are influenced by numerous factors.|
|Ability to leverage.||No leverage available.|
|Tax advantages||On the occasion of exiting, taxes significantly affect returns.|