Investments are broadly divided into two categories, namely, real estate investments and investments in securities. Of the two categories, real estate investment has greater value and profile as compared to the securities. Investing in real estate has been an age-old tradition, which has continued till today. Real estate investments can safely be considered as one of the oldest forms of investments. The world real estate market is experiencing a great upsurge and hence property investments have attained a key status.

 

Real Basics:

Simply put, real estate investments refer to the purchase of properties by an individual. This purchase is made in order to deepen personal stock of capital and to use it for future capital gains. When an investor purchases a house, an apartment, a studio, a resort or even a plain piece of land it is known as real estate investment. Usually investors invest in real estate in order to make provision for a second home or to rent for a decent price. Hence, real estate investment has become a very important source for income for several people. In fact, once individuals own one home of their own they are often in pursuit of a second home or a possible real estate investment.

 

Advantages of Real Estate Investments:

There are several significant and profitable advantages of investing in real estate. The important advantages are as follows:

1) Real estate investment guarantees the investor of stable or increasing returns in the future. This is mainly because supply of land is limited and the demand is increasing tremendously. Hence, there is acute shortage of vacant land on the earth. Hence, the buyers or tenants are ready to pay any price in order to get a particular place. Hence, investors can be assured that once the investment is made the returns are definite and satisfactory.

2) It is not necessary that investors must be trained or highly knowledgeable about the real estate market. Unlike the securities market, the real estate market has only a few specifications and fundamentals. These are very easy even for an average investor to grasp and hence make it easy for him to invest in it.

3) Real estate investment ensures that the investor takes advantage of deferred taxes, which is not the case in security market.

4) The advantage of real estate is greatly felt especially when the stock markets are experiencing a slump. During this slump, the real estate market grows or is maintained at a consistent level.

5) Real estate investment provides that much needed equity for the individual and also ensures cash flow for him.

6) Once investors purchase the property they can rent or lease it out and earn substantial revenue from it. They can use the amount of rent as means for repaying the loan that the investor must have raised to purchase the property. Once, the loan is repaid completely, the rent can be an additional source of income for the investors. They can also increase the rent if the market conditions demand an increase. The investors must be assured that the prices of land would always continue to escalate and seldom decline.

7) This investment is immensely profitable if the investor purchases a holiday resort or a holiday home. He can take the advantage of the burgeoning tourism industry and earn high rent amounts through it. Also, properties in urban areas turn out to be excellent investments.

8) Real estate investment is a long-term investment and is not affected by short-term market fluctuations.

 

Real Estate Investment Tips:

It is important for the investor to follow certain important tips to ensure that they make profitable investments. The tips are as follows:

1) It is necessary for the investor to check his current income and his expected future income before making the investment. It is important that the individual is able to repay the loan taken to purchase the property.

2) It is necessary that the investor calculate the cash flow received by investing in a property. The investor can calculate the cash flow by deducting total expense from the total rent of the property. The expenses include operating expense, depreciation and amount of loan interest. As the interest declines, the equity of the investor in the property increases. Also, as the value of the property increases, the investor would also get greater returns.

3) The investor must make sure that he charges the exact amount of rent. For this it is necessary for him to do an extensive market research. He must fix the rent according to the area of the property, its location and its condition. He can check the local newspapers to help them in this aspect. Also, the rent would be determined on the basis of its usage. If the property were being used for commercial purposes then it would be charged a higher rent as compared to a residential purpose.

4) It is necessary for the investors to keep in mind the fact that there has to be a maximum limit for charging the rent. This maximum limit is known as the upper cap and owners must not exceed this upper cap.

5) In cases of larger properties, it is advised that the owners take professional help from real estate brokers. Real estate brokers are mediators between the buyers or the sellers or between the owner and the tenants. They help the investors in every matter related to the property.

6) It is essential that the investors take an overview of the real estate market before making the investment. They must purchase a property when the market is down in order to get it at a relatively cheaper cost. Also, investors must also adopt a wait and watch strategy and not be hasty in their decisions. They must make the purchase and sale decisions by carefully analyzing the market conditions in order to make the maximum profit out of it.

Real estate investment is considered a one of the most sound investment types. Though, it lacks liquidity it almost assures great returns in the future. In fact, investment experts often term real estate investments as golden investment for the lucrative returns that investors can get from it.