Investing in real estate is almost a straightforward exercise that will fetch inflation-adjusted income. As the most accessible path to wealth-building, it has fewer entry barriers and does not require loads of money to make a start.
Late US President Franklin D. Roosevelt has put it wisely: “Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is the safest investment in the world.”
This sums up the kernel of success in real estate investment and seeks strategies that revolve around some basic questions. The ingredients are finding a good deal, spotting properties that provide the best returns with the least amount of work.
Investing in the real estate market is a prudent way to build a wealthy portfolio. It provides better returns on investment than the stock market without any painful volatility. Real estate allows minimizing the risk by a longer holding of the investment property. When the market improves, the property’s value automatically jumps.
One rule of thumb to become successful in real estate is to avoid the temptation to invest in hot markets. Many real estate investors might speak excitedly about the appreciation of properties or rising rates, but buying at the peak of the market will be a risk and end up losing money.
Real estate markets move in cycles and every market will be in a different phase of the housing cycle.
Look for expanding markets
So, finding property markets that are in an expansion phase will be an intelligent way of investing. In such markets, the home sales and prices will be up, affordability good, construction low, and capital investment on the upswing.
Another factor is choosing the right location. Investing in neighborhoods with high population density, basic amenities and low crime rates, great schools, parks and leisure destinations, medical care, public transportation, shopping malls, and restaurants will ensure good returns at any point in time.
If supply and demand equalize, real estate investors should leverage the opportunity as entry-level home prices will be affordable.
While targeting real estate markets to invest, avoid areas driven by a single economic propeller such as tourism or a particular industry.
Detroit’s economy was largely reliant on the auto industry. When the industry fell in bad days a drastic decline in home values and rentals followed. Vanishing jobs drove out earning people and the housing market plunged and investors lost.
COVID impact and risk-free investment
According to the World Economic Forum’s estimate, the real estate sector has slipped into a downturn by the COVID-19 pandemic and on the financial side, the signs are showing up.
It has said that since April, the enterprise value of real estate assets crashed more than 25 percent in the hospitality and leisure sectors.
Asset classes with a greater human density such as student housing, malls, and healthcare facilities had the biggest jolt. The retail sector covering Home Depot and others are also reeling under the pandemic’s fallout.
Many segments had been negatively affected due to falling occupier demand after human footfall fell became restricted and consumer confidence crashed. Here the investors have to take a long term view before investing.
Real estate trusts
For making risk free real estate investments during uncertain times as in the COVID 19 times, real estate trusts or REITS are good platforms providing the opportunity to invest without the risk faced by individual investors.
The REIT works like a company and owns, operates, and finances income-generating real estate including commercial properties, shopping malls, hotels, and real estate assets that offer income to the investors.