Individuals belonging to the 1% know that it takes more than hard work to build up one’s wealth. Even people who are in the general upper class are aware of this. Financial advisers have found that a critical component to the success of the affluent is investing.
In simple terms, investing means taking aside a chunk of money from your savings. This money is then used to commit to other things beyond your primary source of income. This can be used in forging relationships with business partners or even purchasing stocks.
The main goal in investing your money is to ensure that you will make more from it in the future. Some investments take longer to produce results compared to others. A popular method of investing one’s cash is through real estate.
What is Real Estate Investment?
Investing in real estate is a strategy that utilises real estate properties intended for investment purposes instead of primary residences. Properties are categorised into the following: residential, commercial, industrial, retail, and mixed-use.
Some real estate properties commonly used in investment purposes are apartments, townhouses and even house and land packages in West Melbourne. With these properties, the investor stands to gain from their tenants’ rent, as well as capital gains from property value increase through the times.
Real estate investment can either be active or passive.
Active Ways of Investing
An example of active investment is house flipping. Flipping is often done by renovating properties bought at lower prices. These can be fixer-upper homes or even ones being auctioned off by the bank. Since the properties are bought for cheap, the bulk of the finances will go into a renovation.
In this lucrative form of business, budgets are essential. Contractors may be hired to do some of the work. But most of the time, experienced flippers complete all the tasks themselves. Another example is by becoming a landlord. This is perhaps the most common method used.
Homeowners who own more than one property can rent them out to potential tenants. Nowadays, there are two options for rentals: long-term and short-term. Short-term rentals are widely known as instant hotels or AirBnbs.
These properties are often located in vacation destinations, making them a more valuable choice over hotels. Both methods require funds for initial start-up cost. Landlords need to purchase properties that they will rent out, while flippers need ones that they can renovate and sell in the market.
Passive Ways of Investing
Investors who subscribe to passive investing trust adept individuals to make their money grow. An example of hands-off investing is Real Estate Investment Trust or REITs. REITs present potential investors with a portfolio of all the real estate properties that generate income.
Upon learning more about these properties, investors have the option to buy a share of the REIT. The investor will then earn their money back and more through profit gained from debt and equity built up by the REIT and its properties.
Aside from REITs, investors can also employ the help of a mutual fund. Real Estate Mutual Funds pool together their clients’ money and invest in properties for them. Instead of owning the properties, the investor owns shares of the fund.
Income is earned through dividends in ownership as well as appreciation when mutual fund shares are sold. Both methods and many others out there are considered to be riskier than active investing. This is because investors put a lot of faith in outsiders that they will use their money wisely in hopes of generating more income.
Unlike other industries, real estate investment is not affected as much by its more popular counterpart, the stock market. Investors who commit their money to real estate can continue doing so with peace of mind. After all, their money is safe should a market crash occur.