The real estate market is one of the most stable, durable and demanded investment objects, whose popularity does not diminish even in times of crisis. Financial science and practice know different methods and strategies of investing in the real estate market. How and in what to invest to receive dividends?
Types of real estate investments
In theory and in practice, a distinction is made between:
Direct investment.
They are carried out during the acquisition of immovable assets (land, residential and commercial buildings) for the purpose of their subsequent disposal, as well as in the financing of the construction of these assets. By making such investments in real estate, income may be obtained from its resale or lease, and the former method is considered more profitable if the owner does not plan to continue to use the premises or land for his own purposes.
Indirect investment.
It appeared much later than the first, as a result of government restrictions on direct investment. Indirect portfolio investment is carried out through special funds, trusts or by purchasing securities backed by real estate or mortgages.
Indirect investment greatly simplifies investor access to properties outside the country and, in fact, does not link it to the location of the property, therefore, it is considered a more advanced financial instrument.
investment objects
Real estate investments are carried out in the following objects:
Residential properties.
Housing real estate investments are carried out through the purchase of buildings and buildings that are ready or under construction, as well as the financing of their construction. With the steady development of the economy, the cost of housing is constantly rising, so its resale after some time can bring good dividends. It is true that the price of real estate is also influenced by its location, environmental factors, conditions, infrastructure and many other aspects.
Renting a house for profit is not recommended. Funds invested in the purchase of an apartment or house will return, at best, in 10-15 years, but the impact of inflation during this period will significantly reduce the income received.
Investments in housing are the most frequent, as the owner always has the opportunity to use it for his own purposes.
Commercial real estate.
With the right choice of location, construction can generate higher rental income than residential premises. Investments in commercial real estate require investment experience, being the object itself of constant attention from the owner – for the lease it is necessary to maintain the state of the building, the functioning of communications and services, etc.
The main disadvantage of working with this type of property is the extremely low liquidity of the non-profit facilities. A building in an unpopular location or with an unsuccessful layout is very difficult to sell, and for your own use, in most cases it goes unclaimed. Therefore, commercial real estate is not suitable for the role of passive income source, but with proper attention, it provides a good and stable profit.
Earth.
The most profitable investment object in terms of the amount of costs. Unlike the previous two types of real estate, the investor does not need to spend money on maintaining the conditions and communications of the place, its repair, maintenance, etc. The only difficulty is finding land in a promising area with the possibility of future development.
The cost of the land depends on its location, the availability of transport and engineering communications, as well as the properties of the soil and its intended purpose. The greatest demand is for land for housing and residential buildings.
Features of real estate investments
When buying a property for the purpose of generating income, the investor must take into account the following market characteristics:
- Reselling real estate brings little income but requires less investment;
- Local market valuations must be in dollars based on recent years;
- Real estate objects are the cheapest in summer, but closer to winter the price increases – it allows you to choose the ideal time to buy / sell;
- The price is influenced not only by the state of the economy, but also by the quality of the object, as well as the availability of infrastructure and environmental factors;
- When dealing with the secondary market, consider the costs required to bring the property to its proper state.
Pros and cons of real estate investing
The main advantages of these deposits:
- Real estate is not subject to inflation;
- The cost of an object in a steady state of the economy is gradually increasing;
- Allow minimizing taxation due to depreciation;
- The real estate market is characterized by low volatility and highly predictable;
- Real estate items are included in the owner's total capital, but may generate current income;
- The presence of real estate opens up opportunities for obtaining bank loans and loans.
The disadvantages of such an investment include:
- The high cost of objects and the threshold of market entry;
- Dependence on area price and other factors;
- Low liquidity;
- Asset mobility;
- The need to assess the possible maintenance and maintenance costs of the facilities.
conclusions
Real estate investments are one of the most reliable and profitable with the proper choice of investment object. Real estate is devoid of many drawbacks of financial assets, for example, the influence of inflation, but at the same time, it is characterized by low mobility and liquidity, so the investor must carefully choose the moment of purchase and sale. Receiving passive rental income is only justified when working with commercial real estate, but it can bring good additional income until the time of sale of the property.
When investing in real estate in 2018, the investor must carefully study the regional market and the general economic situation of the country. So, in Russia, experts predict a reduction in demand for the purchase of residential and commercial real estate this year.
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