At all times, people strive to preserve and increase their savings and use a variety of tools for this. One of the most popular ways is the purchase of real estate.
Real estate investing is a financial investment in any type of property for profit or to maintain existing savings. You can invest not only in apartments in new buildings or in the secondary housing market but also in commercial facilities, country houses, and land plots. For example, if you are looking for something in Europe and you like Denmark. On the local site Lokalebasen, you can find thousands of ads, including car park rentals in the city center of Copenhagen (in Danish it will be “parkering i København K”, link here) and much more.
As a rule, investors, investing their own or borrowed funds in real estate, pursue the following goals:
- Get passive income (monthly payments from renting or renting real estate, dividends from securities);
- Make a profit from the resale or exchange of real estate with a margin;
- Save existing savings.
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Pros of investing in real estate
One of the main advantages of investing in real estate is stability. Even in a crisis, real estate can be profitably sold or rented out, and over time, its value only increases.
With the right approach, residential and commercial spaces can provide high one-time profits (when reselling), or reliable passive income (when renting or renting).
Of the advantages, one can also note the variability in the use of real estate. This asset may be sold, rented or used for personal residence.
Pros of investing in real estate:
- Investment stability;
- Liquidity and rising real estate prices;
- Reliable passive income or high one-time profit;
- Lots of income-earning options.
Cons of investing in real estate
The disadvantages of investing in real estate include the high initial cost of objects. In addition, the purchase of housing is almost always associated with a large number of additional investments, including repairs and further maintenance (current repairs, purchase of furniture, payment of utilities, and taxes). Taken together, these costs can add up to significant amounts.
Another factor that discourages those who want to make a quick profit is that investments in real estate pay off for a long time. When renting or renting a home, payback periods can be calculated in decades. In addition, despite the fact that, in general, real estate tends to rise in price, it is not uncommon for the market to develop a situation in which housing prices remain at the same level for a long time or decrease. As a result, for a profitable sale, you sometimes have to wait several years.
Cons of investing in real estate:
- High cost at the start;
- Additional Service Charges and Taxes;
- Long payback;
- Liquidity risk.
What are the ways to invest in real estate?
Each way of investing in real estate requires a different approach and level of investor knowledge. Consider how you can invest in real estate and for whom this or that method is suitable.
Ways to invest in real estate:
- Primary and secondary housing;
- Country houses and land plots;
- Commercial real estate;
- Mortgage bonds;
- Off-budget real estate funds.
This includes both apartments in new buildings and in the secondary housing market. Apartments are in demand among beginners and experienced investors, occupying about 60 percent of the entire investment real estate market in Russia.
Investors receive income from the resale or the rental of the apartment or rent. It is more profitable to purchase apartments in houses under construction – they usually cost less than similar ready-made housing. Since it takes longer to wait for the delivery of the house and receive the keys to the apartment in a new building, the developer compensates for this factor due to the low price of the object.
In addition, it should be taken into account that banks issue loans with a lower interest rate for the purchase of primary housing than for the purchase of finished apartments.
Purchase of commercial real estate
Commercial real estate is more profitable to buy for rent than for resale. Such an investment, unlike residential properties, requires a higher level of knowledge and experience from the investor.
In the same Denmark, for example, on the Lokalebasen site, you can find a selection of parking spaces (“parkering i Odense”) with different options to choose from.
When making your selection, you must consider a variety of factors that determine the object’s liquidity (the presence of potential tenants, possible business areas, the traffic of the outlet, and many other factors).
Acquisition of a country house or land
Country houses and cottages can also be profitably sold or rented out. The main thing is that the object is located in an area with good infrastructure, not far from a major city. The price will also be affected by additional objects on the land plot (for example, a bathhouse, a garage or outbuildings).
When choosing a land plot, please pay attention to the following factors:
- Purpose of land;
- Transport accessibility;
- Proximity to utilities;
- Social infrastructure.
Land plots without capital construction facilities usually cost less than other types of real estate, do not require utility bills, and maintenance of the facility in good condition.
In order to profitably invest in land, it is necessary to take into account the purpose of the land plot – the most liquid land intended for construction (plots for individual housing construction). For long-term investments, agricultural land is suitable, which in the future will become part of the settlement. At the start, they are much cheaper, and when they join a village or urban district, they rise in price due to the possibility of transferring them to individual housing construction.
Purchase of mortgage bonds
Mortgage bonds are one of the types of securities that banks issue on the security of real estate. An investor, purchasing a bond, deposits funds into the bank, which are subsequently used to issue mortgage loans. Further, the investor receives income from mortgage payments that borrowers make to the bank. Even if borrowers stop paying their mortgages, the bank can sell their mortgaged apartments at auction and fulfill its obligations to investors.
Mortgage bonds are a long-term investment and will take a long time to generate income. Along with this, mortgage bonds are one of the most reliable types of investments, as they are secured by the borrower’s real estate and the bank’s reputation.