Investing in real estate is generally considered a high-risk and high-return investment, yet it is one of the most preferred assets, especially for wealthy and experienced investors. For them, as well as for anyone who understands the local market, real estate is among the safest avenues to invest your money in. Buying your own home doesn’t really qualify as investment, so don’t think that becoming a real estate investor is easy. In order to expand your investment portfolio and secure your return, follow every step of our guide as basics.
1. Start with understanding how the market functions. You should make a thorough research into the subject – how the real estate market works and what your investment options are. As for the start, dubaichronicle.com publishes regularly real estate market reports by well established companies.
Define your goals and evaluate your finances to choose which option will be best for you. Overall, you should be looking for a fine balance of the underlying risk versus the returns from the investment. Understand the difference between the two types of interest in real estate – ownership interest, where you take full control and responsibility for the land and buildings, and leasehold interest, where the tenant is granted certain rights in exchange for rent payment. The most common form of real estate investing is purchasing ownership interest and then gaining from the rent.
2. Choose the level of risk. You should choose between the private and the public markets, each having its own level of risk. The more direct approach is investing in private real estate – buying real property. You, or a manager you’ve hired, will operate the property property and will be responsible for it. The less direct approach is buying shares of a publicly traded real estate company like Emaar or Aldar, and then earn dividends.
3. Choose between equity and debt. Investing in debt means you lend money to someone, so that they can buy interest in property. The money you gain come in the form of interest payments on a mortgage. And investing in equity is when you are actually purchasing the property.
4. Choose a real estate sector. The sectors you can invest in are public equity, public debt, private equity and private debt. Choosing public equity means you should look for publicly traded real estate developers, while the public debt allows you to invest in mortgage securities. When you are investing in private equities, you will most likely be buying residential or commercial properties, while selecting private debt, means you are investing in private mortgages.
5. Real estate trading. This is a popular form of private equity investing that professionals refer to as flipping. You purchase a property and then resell it at a higher price. What you should know first is that you need to resell the property as quickly as possible, in order to minimize the costs that come with ownership. In that case, you don’t need to do any pricy and time-consuming improvements to the building. Another way to gain money is to renovate your property in order to increase its value on the market. Flipping can sometimes get very expensive and in combination with the longer time for improvements, there’s a relatively high level of risk.
6. Choose the type of real estate. When choosing a property, the first thing to consider is of course its location. Then, you should think of its type – residential homes, warehouses, shops, office buildings, or a combination of these. The type of real estate will define its performance on the market. Typical real estate investors and beginners usually prefer small apartments.
Income-producing real estate. Those are offices, retail, industrial and leased residential properties. Hotel apartments and others can also be income-producing. Luxurious large houses, vacation properties, or vacant commercial buildings on the other hand will be non-income-producing investments.
Office property. Offices generally perform extremely well, so they are popular types of property. They are the largest and the highest profile real estates and have the best locations. And the demand is constantly growing.
Retail property. Retail properties, whether large shopping malls, or single tenant buildings, tend to perform best in growing economies when the retail sales are high. The return from them is usually more stable than from offices and the demand for retail space has multiple drivers – location, population density, visibility, population growth, and income levels.
Industrial property. The average real estate investor should consider this type of properties. Industrial buildings require smaller investment, are easier to operate and manage than others. Their functionality is one of the most important drivers for a good return, along with proximity to major transport routes, specialization of the building and so on.
7. Analyze your finances. Look at your overall portfolio and evaluate your assets, knowing that real estate can require a significant amount of capital.
8. Advice from an expert. Once you’ve made your initial plan for investing, take it to an accountant or investment broker. Make sure everything goes smoothly by allowing experts to aid you. You may need a mortgage broker, an accountant, a property manager, a home inspector, a real estate lawyer, and an insurance broker. Choose a good and well-experienced real estate agent.
Before beginning any kind of investing, make sure you’ve measured all the potential risks and gains. And with some professional help from your team, you should be ready to invest your money in a way to secure your short or longer-term profit.