Is Investing in Real Estate for You?
Updated: May 15, 2022
Real estate investment is the most popular form of investment that people make. It is usually considered to be one of the safest investment choices. This investment has more reasons other than just price appreciation. If you have a family you will understand the necessity of having a roof over your head. But are we only talking about that one particular roof we call home or is there more to it? Let's find out.
Real Estate Investing
Despite the high ticket size real estate investing has been one of the most popular investment choices of investors for decades. If you decide to talk investments with your parents they will always justify how gold and properties are safer and better investment choice than shares. The word “Real” originated in Latin and means ‘actual’ or ‘genuine’. Real Estate means investing in properties like land or buildings that generate income. It's not as volatile as the stock market.
Real Estate investing involves buying land, commercial buildings, or residential buildings/houses and selling/renting each at a profit. Now, don’t be mistaken, it is not always sold at a profit, just like any other investments ( to identify the best options as per your profile check out the best investment options for you) you could lose all your money if you invested in an unflourishing property. Although it is less volatile than a stock market, even though it is a good steady source of income, it isn’t all flowers and chocolates.
One has to be aware that Liquidating is not easy when it comes to real estate investments. The owner has to patiently wait until a buyer is interested and buys the property, until then it is the investor’s responsibility to maintain and publicize it in the market. In some cases where the particular property has attracted multiple buyers, in that case, the investor sells the property to the highest bidder.
Real estate: Passive or Active Income?
You may have heard of owning real estate as a passive income idea but is it really passive? Many real estate investors might tell you otherwise. A lot of hard work, research, and time goes into earning from this source. . Especially if you have read Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! by Robert Kiyosaki, this would sound very contradictory to what we read.
Renting the property results in a small but periodic income that on compounding over a few years will be higher than the original buying price. This will also involve additional costs of repairs and occasional overall maintenance prices from your pocket. Once the original amount invested has been leveraged back, the rents after that will purely be your profits and earnings.
Market Condition Dominates the Play
Timing is important in investment. Selling the property will be a one-time money settlement or in short time period installments but the amount of money will be finalized before the property is sold to the buyer. If the real estate market is thriving, the housing demand will be high, which in turn will cause the property value to appreciate. Whereas, if there’s less demand in the real estate market, the property won’t have multiple bidders, this, in turn, will lead to discounted prices for the property.
For instance, the current situation topped by the fed rate hike has made the market conditions adverse with an increase in interest rates the borrowing will go down and fewer people taking home loans may lead to a decline in property prices. check out the article we published last year on Is The Real Estate Bubble Ready To Burst again?
Keeping the property well maintained and well secured helps in raising its selling price while if it has chipping paint or a lot of repairs in need, the price of the property will automatically fall. Before investing in that property, the investor should also keep in mind his ideal buyer for that house. If the house is close to a school and other facilities, a family will be more likely to purchase it, which means it should be maintained keeping in mind that a family will move in with kids. The scenery and neighborhood also come into the picture here. The same thing doesn’t apply to a bachelor who is coming into town for his new job. A working individual wouldn’t have anything in mind except the traveling to work commute time. His house preference will be small, easy to clean, and close to the commercial building area where he can work in. The working professional wouldn’t initially bother to have a big house in an expensive neighborhood. Lastly, if a business needs to buy or rent a property, they will look for a commercial area with a big building all to themselves depending on the size of their organization. A small land or house just wouldn’t cut it.
Keeping in mind all this, if the investor gets a good bid on a property, he can sell it for a profit, but what if he’s going into a loss? What would one’s options be then? Well, he could either sell it at a loss and make up for it with his other properties, or then he could wait to sell/rent it until he gets a better bid on it. Until then, it will be his own money that will have to take care of the property’s expenses.
Study the pros and cons of investing in Real Estate well before investing your money in it. It is a good steady source of income with less volatility but it also requires immense knowledge in the subject and of course, soft skills, marketing skills, and people skills. Making a buyer connect with an investor automatically helps sell a property without further hassle. Also remember the common saying when it comes to real estate, “You make your money when you buy, not when you sell.”