Most people, when asked about real estate investments, would almost always mention their own homes as their only real estate investment. After all, their homes are most likely the single largest investment they will ever make in their entire life. But what they don’t realize is that there are numerous ways of investing into real estate. Here, we discuss a few of them.
Multi-door apartments, duplex, condominium units for rent – these are just some examples of properties that people buy or build to augment their incomes. The ever-increasing population and influx of people to highly urbanized areas has established a strong demand and high occupancy rate for these types of properties. In addition, this can provide owners a continuous flow of passive income with minimal effort needed for periodic repairs and maintenance.
Real Estate Investment Trusts (REITs)
A real estate investment trust (REIT) is a security that is traded on major exchanges much like any other exchange-traded funds but primarily focuses on property stocks. Think of it as pooled funds coming from various investors, individual or institution, invested in a basket of property companies, e.g. Property1, Property2, Property3, that are publicly traded during market hours. Another feature of REITs is profit distribution through regular dividends.
Purchase of publicly-traded property stocks
Another option is to invest directly in individual property stocks by buying publicly-traded shares. This is highly recommendable to people who have the knowledge and time to carefully analyze stocks and can be more rewarding than REITs if one is able to perfectly catch good buying opportunities. These individual property stocks may also give out dividends from time to time, depending on company performance.
Given the options above, there are now many ways you can call yourself a real estate investor. But why do some people prefer having properties as their investment instead of paper assets such as mutual funds and stocks? Aside from the fact that properties are tangible investments, two of the most important reasons are leverage and capital gains.
The use of what Robert Kiyosaki calls “other people’s money” or OPM. With leverage, you can acquire and control properties even if you don’t have enough cash to buy them in full. This is possible through several financing options that are available. There are some property owners who rent out their properties and use the monthly rent to pay off their monthly mortgages – it’s like having someone else pay for the property you acquired!
People invest in real estate with the hopes that the prices of the properties they acquire will eventually go up. This difference between purchase price and the property’s current market value is called capital gains. Of course this doesn’t happen all the time. Take for example the recent housing bubble that trigerred a global recession during the late 2000. Therefore, the best strategy here is to hold on to your asset as generally, real estate prices do climb over time.
But of course, just as in buying your own home, due diligence must be done in choosing which among the many properties in the market are truly good deals.
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