Real Estate Investment

What is real estate investment
Real estate is basically defined as immovable property such as land and everything permanently attached to it like buildings. Real property as opposed to personal or movable property is characterized by the right to transfer the title to the land whereas title to personal property can be retained. The investment in real estate essentially depends on the risks associated with it, that is to say, even if the venture succeeds when the future stream of income will accrue to the investor and the alternative investment opportunities. Real estate investment can be attractive if viewed as a business opportunity; it can generate rental income, using it as collateral to secure a loan for a business venture, to offset otherwise taxable income through cash savings on tax-deductible interest rate losses, or simply from the profits garnered from its resale. Notable, in this context is the gains reaped by real estate speculators who trade in real estate futures (by buying and selling purchase options).

Common examples of real estate investment are individuals owning multiple pieces of real estates one of which is his primary residence and others are occupied by tenants from where the rental income accrues. Real estate investment is also associated with appreciation in the value of property thereby having the potential for capital gains. Tax implications differ for real estate investment and residential real estates. Real estate investment is long term in nature and investment professionals routinely maintain that ones investment portfolio should have at least 5%-20% invested in real estate.

A Real Estate Investment Trust (REIT) is a corporation or body investing in real estate that has the property to reduce or eliminate corporate income taxes. In return, REIT’s are required to distribute 90% of their income among the investors. These incomes are often taxable. REIT’s provide a similar function as does Mutual Funds provide for stocks in the share market. The key statistics to study about the REIT’s are the NAV (Net Asset Value) and AFFO (Adjusted Funds From Operation).

Real estate investment has attracted lot of people. The prospects are increasing day after day. At the same time it needs to be understood there are lot of risks in the real estate market. Real estate market has the same hype of a stock market. Therefore you should be very careful in making your investments. Some of the tips mentioned below will be helpful to you in this regard.

How to Invest on Real Estate
You should not follow the principles of investing in a stock market for a real estate market. In a stock market you generally take wild risks and invest blindly on the basis of some speculations. When you are planning to enter the real estate market you must have adequate cash at all times because the investment is very huge and moreover the returns are generally reaped in the long term. Similarly you will have to posses adequate reserves to maintain the properties for a considerable period of time. This is a prerequisite when it comes to real estate investment. You must carefully consider these factors before investing in real estate.

Have an idea on your Budget (Self Determination)
You must have a clear idea of how much you are going to spend and the rate of expected returns. You can approach your financial consultant for more guidance.The budget should not only reflect on the actual and anticipated revenues and outlays but also substantiate how you will meet unexpected situations because the long term financial implications are not always predictable. Even if they are predicted they won't stand true by all means.

Investment on a Prime Property
A prime property is called so by nature of its location and marketability for e.g. in the heart of the city and is easily accessible to all and has all basic facilities nearby like transport and restaurants and above all priced at a very high rate. If you are planning to invest in a prime property you must possess adequate resources to purchase and maintain it.

Commercial Area
The prices of prime properties in commercial areas are always on the rise. This upsurge is mainly due to the increasing economic activities and business transactions all over the globe. You need to be extremely cautious because many sellers try to woo real estate agents and buyers by making unrealistic promises and inflating the prices. Therefore unless you are confident that a prime property in a commercial locality can fetch you the income it is not advisable to invest.

Investment on a Non-Prime Property
Non prime properties are those which are not located in principal centers and are promising in terms of business opportunities. You need to give equal importance to non prime properties because a non prime property may become a prime property later by virtue of many factors like sudden demand, or some other resources available in the place.

Residential Area
Properties in residential areas also show an upward trend with regards to increase in price. However it is not profitable to invest in these because you may be able to gain profits only in the long run. Short term profits will only be marginal. Moreover the returns may not be definite as the prices of residential properties may not even increase over a period of time.