Buying and owning real estate is a rewarding and profitable investment strategy. Unlike investors who invest in stocks or bonds, potential owners can leverage their investment to purchase a property by paying a portion of the total cost upfront and then paying off the balance and interest over a period of time.
While a traditional mortgage typically requires a 20-25% down payment, in some cases 5% is enough to buy the entire property. This ability to control the asset at the time the paperwork is signed encourages property seekers and homeowners alike, who in turn can take out second mortgages on their homes to make down payments on additional properties. Are you an investor? La Casa Property present you three important ways to make money from real estate.
1. Rental property
Owning rental properties can be a great opportunity for people who have handyman and renovation skills and the patience to manage tenants. However, this strategy requires significant capital to fund initial maintenance costs and bridge periods of inactivity.
Advantages
- Regular income and increase in value of the property;
- Maximization of capital through leverage;
- Numerous tax-deductible ancillary costs.
Disadvantages
- Management of tenants can be cumbersome;
- Possible damage to property by tenants;
- Lower-income due to possible vacancies.
2. sale of houses
House flipping is for people with a lot of experience in valuing, marketing and renovating properties. Selling houses requires capital and the ability to make or supervise necessary repairs.
This is the literally "wild side" of real estate investment. Just as day trading differs from buy-and-hold investing, those who buy properties differ from buy-and-rent owners. Case in point: Those who try to often sell the undervalued properties they buy for a profit in less than six months.
Advantages
- Resources can be secured in a short time;
- Quick return is possible.
Disadvantages
- Requires in-depth market knowledge;
- Unexpected cooling in a hot market.
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3. Real Estate Investment Trusts (REITs).
Real Estate Investment Trusts (REITs) are ideal for investors who want to participate in real estate transactions without having to engage in traditional real estate transactions.
REITs are created when a company (or trust) uses investor funds to purchase and manage income-generating real estate assets.
To maintain its REIT status, a REIT must distribute 90% of its taxable profits as dividends. This means that REITs are exempt from corporate income tax, while ordinary companies are taxed on their profits and must decide whether or not to distribute their profits after tax4.
Like ordinary dividend stocks, REITs are a good investment for stock market investors looking for a regular income. Compared to real estate investments described above, REITs offer access to non-residential real estate such as shopping centers and office buildings that cannot normally be acquired directly by private investors.
Most importantly, REITs are publicly traded and are therefore very liquid. In other words, you don't need a real estate agent or a property transfer to turn your investment into cash. In effect, REITs are a more formalised versions of real estate investment trusts.
Finally, when it comes to REITs, there is a distinction between equity REITs, which own buildings, and mortgage REITs, which finance real estate and invest in mortgage-backed securities (MBS). Both offer real estate exposure, but the nature of the exposure is also different. Equity REITs provide more traditional real estate exposure, while mortgage REITs focus on income from real estate mortgage loans.
