“Best investment on Earth is Earth”. It is believed that one of the easiest way to earn money is real estate, but it could also be one of the trickiest investments. The risk associated with it acts as a natural barrier for inflows, but the large money making opportunities also attracts many risk takers. The money making opportunities are not limited in this field and are really diversified, you not only gain rent or capital gains, but a lot of diversified options can be given in real estate.
- Rental Income: The most common source of income generally is the money received from renting out the property. The use of the land could range from commercial or residential. Renting businesses are however much safer and rewarding than renting to the individuals. This is because the businesses stay for a longer period and would not like to stain their brand names especially by not paying the rent. Also there is generally a steady increase in the rent after some interval which covers not only the inflation but also the opportunity costs for the owner.
- Appreciation of property rates: The increase in the value of the land is generally observed with time. The reason of appreciation could be better infrastructure, increase in demand of the property. The proximity of malls, schools and playgrounds result in appreciation of the property. So the basic pillars for capital increase in the value is improvement of surroundings and development of the locations.
- Buying at an exceptionally low price and selling at higher one: During quick sales, people buy the flats or property during the construction period or even before it. As there is much more risk to the buyer here, the seller sells the property at lower prices which generally rise as the project gets complete. Further good negotiations skills increases the probability of buying the property at cheap and selling or renting it at a price of that above the market price.
Further these kinds of investments are better than stock, as for stocks can only be sold at market price, but properties can be sold higher than the market prices.
- Leveraging: If you do not own the property, and leverage it at say 30%, but you still will receive the rent which is worth 100% of the particular property.
- Renting units: One property can be rented to multiple parties, which increase the earning capacity of the owner. For example, 2 rooms can be rented to 2 different parties, whose combined payment would be marginally more than what the owner would have earned if he rented it out to 1 party only.
- Some trusts are established which are related to investment in Real Estates, these are broken down in the form of shares, so that multiple parties can join and more investment can be done in properties. All the rental income and capital gains are generally then divided in the ratio of the share value held in the trust.
- Options on Real Estate: Although it might seem a capital markets strategy, but options are agreement in which you can buy a given property at a given price in a particular period of time. Generally, a fees is paid for that and either that person buys the property or finds an investor who is willing to pay more, hence earning a finder’s fee as his interest and earning on that option
All these are the ways to earn from a property. As rewarding as they may sound you must keep some little things in mind. The appreciation in the property can be due to inflation in the economy. If appreciation rate is equal to the inflation rate, it would mean that the price of all the other commodities in the market has also increased by the same rate and thus the real value of the property has remained stagnant. Hence the nominal increase in the price of property might not be the real income.
In essence if you are lured by someone’s offer to make fast money in real estate, he is not coming up with something like a new mechanism, because all these mechanisms have existed for quite some time now. There is no debate that real estate still remains one of the best and most rewarding forms of investments.