Thinking of investing in residential houses, condominiums, and real estate properties? Well, here’s what you need to know about real estate’s benefits and the reasons why one must consider it as a life-long investment choice. For the investment community, the real estate has constantly received praise, it being a sound and durable
asset in their portfolio for surviving the tests of time as its market lies in the industry's stable growth of value over the years.
Despite the soaring prices of housing and lots, inflation, economic downturns amid health crises, and economic recession, the real estate market has always proven to be steady on its rise in terms of its historical market performance. And its demand is only continuing to rise due to the industry’s resilience, the increasing urbanization, growing population, and the transforming work and home set-ups, hence, the unceasing rise we witness in the demand for properties.
Well, this article will discuss the different types of properties, benefits, and reasons for investing in such and ways to earn profit. Readers who are just newbies in investing will be told of the many reasons why it will be a wise choice to invest in real estate properties even in this very time of the Covid-19 pandemic.
WHAT ARE THE COMMON TYPES OF REAL ESTATE PROPERTY INVESTMENTS?
Real estate properties are loved by many investors because of their tangible assets. However, real estate is not just about owning or renting a house or a condo unit as it is typically known for many. Here shows the plenty of types of properties you must be familiar with, in order to help you in defining your investment goals, first.
Residential real estate - houses, apartments, and condo units are among the most popular types of properties for families, especially for the expanding middle class, newlyweds, students, and working professionals. This may be the one you are looking for if starting a family is in your mind.
Commercial real estate - this refers to properties that host business operations (like BPO and banks) and services such as apartment complexes, building & office spaces, retail stores, hotels. Properties of this type primarily generate revenue from rental profits, take for example the clothing stores that are in shopping malls.
Industrial real estate - lands, buildings and spaces that are fit to accommodate businesses relating to mass production, assembly, manufacturing like a warehouse and facilities that are intended for research and development, and logistics and distribution belong to this category.
Raw lands - these are the lots and vast of lands that are not yet developed or have no existing structures yet such as farms, ranches, and other types of agricultural lands.
Real Estate Investment Trusts (REITs) - significantly cheaper than the earlier mentioned types, REITs are the best real estate investment for retail investors. REITs do not require a person to have millions in pockets for one to enter the real estate market and it just works similarly to stock and ETFs whose shares can be bought and sold in an online brokerage or exchange. Another good thing about owning shares of REITs is earning income, through dividend payouts, without having to actively manage it, day
to-day.
PLENTY OF REASONS FOR INVESTING!
As with stocks, mutual funds, ETFs and other asset classes, an investment newbie will just as well be enticed by the benefits offered by investing in the real estate market. Each type of real estate property produces some serious cash flow depending on how it will be utilized and strategized correctly by the property-seekers and investors.
1. Price Appreciation, steady price increase over time
The primary way of earning in this market is through capital appreciation of the land and/or property of choice, thanks to its reliable and robust market history that enabled it to withstand the ups and downs of the economy, and even outperform at times. In a classic Buy, Hold and Sell move, an investor can make an enormous money out of real estate property. A property held over a long period of time, say decades, will see a remarkable value appreciation due to inflation, hence, making it a solid hedge against inflation over time.
A quick glance on the different factors at play that affect the appreciation of property value will help us understand the dynamics of real estate proprietorship. “What type of property do investors favor?” is the question at the top.
First, of course the neighborhood it is in should be situated in a quality location in terms of standard of living. The property of choice or inquiry will be much preferred by property investors and seekers if it is accessible to schools, offices or business district,
marketplaces or commercial centers like shopping malls, main roads and transportation hubs, hospitals, and police stations. Accessibility such as this rate offers convenience to real estate investors particularly to residential property-seekers.
More to these, real estate investors, especially the bigger ones, keep an eye on the economic outlook and commercial masterplan in the area. Properties built on areas that are set to be economic hubs or urban centers will soon see a positive growth in their value in the future. Properties in the proximity of tourist destinations also come as attractive assets to investors.
More importantly, investors almost always put a premium on the reputation of the property developer. Real estate companies/corporations that have established, reputable, if not excellent, records in the industry are in way greater advantage in drawing more demands in their projects.
2. Steady cash flow, multiple ways of making money
Rental income - when a landlord/lady generates income through periodic collection (on monthly, quarterly, or annual basis) of rental or leasing fee from tenants. Other proprietors also opt to rent out their homes as vacation stay-ins for transient tourists just like in Airbnb. Nowadays, the growing trend in the demand for condo and apartment rentals comes from middle-income families and working professionals among others, seeking convenient places in metropolitan areas.
Since the inflation keeps pace with inflation, the land or property owner can increase the tenants’ rental charges accordingly, therefore, acquiring higher rental income over time.
Flipping - simply when an investor or realtor purchases an undervalued real estate property such as a house or condo unit, have it undergone a renovation and makeover, and sell it at much higher price for a profit.
REITS - as mentioned, a retail investor earns profit from the dividend payout offered by the real estate company as well as through the price appreciation of REITs shares value. Dividends are the sum of money paid to investors or shareholders from the companies’ surplus profits or reserves earned from their income-producing properties and assets. This is a good and appropriate choice for new investors who desire for an additional stream of income that is comparatively more liquid than physical properties.
Ancillary profits - this is another way of making money in real estate wherein an additional revenue could be derived from other offered products or services aside from the rental income itself. This includes mini businesses within the real estate property such as parking fee or vending machines in an office building or laundry shops in an apartment or condo unit, which both yield extra gains for the landowner.
3. Diversification
Real estate investment being a tangible asset has generally low volatility in terms of its market price as compared to the performance of equities or stocks. So, this is a good addition in your basket of assets as this could provide a stable protection to your investment portfolio should the other asset holdings experience turbulence, and inflation in general.
4. Self-utility
A property investment, aside from being rented out for others, could also be maximized by, of course, utilizing it for own use. Here you get the benefit of enjoying its value as you get to live in your own property while also getting the value appreciation. You may choose to live in it for a while then opt to sell or rent it out when you find an opportunity to purchase another property soon. More so, real estate proprietors remind us that we should choose a property like a home that could be held for a long period, say for decades.
FEW REMINDERS WHEN INVESTING IN REAL ESTATE...
Few items in the checklist are to be taken in mind before investing in real estate properties as this industry still carries its own risks despite the stable performance. First, property investments are not as liquid as other investment class, meaning the property can not be easily sold as it may take time to breakeven or attain the net gains or else
you can end up selling it below its market price.
Management issues are also at the top of concern since the property structure is the responsibility of the owner especially when dealing with tenants with poor behavior notorious for the damages they made in the unit or their delayed payments. Other related issues such as high vacancies that could be too costly to the landowner and its entailed legal liabilities should also be the matter of consideration prior entering the rental and real estate business.
Since real-estate is a cash-heavy investment option, evaluating your financial readiness to enter in this type of investment should therefore be the first step. Would you afford the down payment and subsequent installments? How much cash reserve do you have in order to serve as a safety net or emergency funds when the need for it arises should an unexpected and costly event occur? For how long could you endure covering the expenses and paying for monthly amortization when the units are still vacant?
Just imagine the scale of money needed for acquiring, maintaining, and improving the property since it is a physical asset. Setting a realistic budget could go a long way, as the golden principle says, only invest money you can afford to lose.
Above all, study the local property market first by researching and comparing the different types of properties to invest in. Consider consulting with real estate brokers and agents for deeper knowledge when it comes to market dynamics. Delve into listings online to widen your property search options and compare their qualities.
ANOTHER GOOD REASON IN INVESTING DESPITE THE PANDEMIC:
Despite the lockdowns and new normal quarantine we are currently in, real estate analysts still see a positive prospect for the real estate market amid the Covid-19 pandemic as it remains stable in the long term. Property investment remains a haven during this crisis as we see a sustained demand for space especially for properties in central business districts showing long-term resilience.
Investors who just entered the real estate market during the pandemic will see good deals in pre-selling residential units, for example, that are being offered at discounted rates which makes it more affordable to many property investors and seekers. Since property prices did not skyrocket during this time, there will be a great upside potential once the Pandemic is over. Secondly, financial institutions became more lenient when we talk about availability of loans and terms of credits during the Pandemic.
Market cycle shows that the economy is always bound for an imminent recovery following a market recession or crisis as seen in historical charts. Therefore, the post Covid market will definitely see a value appreciation in the prices of real estate properties today.
There are a lot of business and commercial hubs in the metropolitan area still under development, therefore, bringing enormous opportunities for demand for condo units and homes nearby central business districts in the future.
OVERALL...
At the top of it all, real estate still stands as one of the most durable and time tested investment assets that everyone should consider for the long-term horizon and in diversifying their portfolio. The steady gains you could reap out of real estate properties
will build your personal wealth over time, that could be passed to your children.
However, there are still risks that have to be always considered, especially that the money you will have to pour in for this will depend on your risk appetite. Always do the calculations and evaluate both the advantages and disadvantages of the real estate investment to minimize risks.
Sources:
https://grit.ph/real-estate/
https://federalland.ph/articles/types-of-real-estate-property-investments/# https://federalland.ph/articles/factors-that-affect-property-value-appreciation/ https://www.manilatimes.net/2020/09/01/business/real-estate-and-property/property investment-as-a-safe-haven-during-a-crisis/761884
https://business.inquirer.net/319896/philippine-real-estate-opportunities-in-a-post pandemic-world-why-intelligent-investors-should-act-now
https://www.moneymax.ph/personal-finance/articles/how-to-invest-real-estate