From a historical point of view, investing in real estate is as elderly as the construction of property itself. Indeed plenty of business owners who created their wealth through companies then went on to diversify in to real estate investments. In fact, over the years real estate investments have produced similar returns to those found in the stock market. Let's take a look at a number of the reasons:
Now let's take a look at the mechanics of buying property. Here it can be seen that investing in real estate is different from most other traditional investments such as stocks. With real estate you can often borrow up to around 80 percent of the value of a property, sometimes even the full value & beyond under special circumstances. Thus a more modest investment of say 20 percent of the value can be used to buy & control the full value of the larger investment. Naturally, if the value of your investment increases, I.e. property prices rise, then the value of your real estate investment also increases. If so, then you are in to profit, including that on the money you originally borrowed.
First of all, & most obviously, the supply of building land around the world is limited, even when taking in to account landfill opportunities. Since the world's population is growing & the demand for housing ever increasing, then there would appear to be a never-ending & increasing requirement for real estate of all types.
Borrowing in order to invest in real estate makes real estate a type of leveraged investment. But if you know anything about leverage, you will realize that leveraged investments can also go against you. What, for example, if the property you purchased for $300,000 decreased in value to $240,000? Even though the value only dropped by 20 percent, you actually lose 100 percent of the original $60,000 investment. & if you have a mortgage on this property making up its full purchase price, you will actually need to pay money to the mortgage provider in order to cover the costs of selling the property. That is in addition to the loss of the whole of your initial investment.
Naturally, there will be costs associated with real estate investing (such as legal fees & property maintenance, taxes, etc), but these are usually little in comparison with the potential gains.
So, as you see, investing in real estate is something to be taken seriously & should not be completed with money which you might need for other things in the near future. Investment in property is more secure as a long-term investment. In the above example, if you could have held onto the property & not sold it, the loss would purely have been 'on paper'. In all likelihood, over time the value of the property, unless grossly overpriced when you originally bought it, will rise & you will likely not only recover the full value of the initial investment, but also possibly make a lovely profit when you do come to sell.
Another reason that real estate is a popular investment is that there's profits to be made from it whilst you are the owner. In addition to the tax-saving benefits (in that any tax due on the property's increase in value doesn't become due until it is finally sold), you can also make additional money from renting out the property. This can often cover all your jogging costs of the property, and providing a profit on top.
Unless you make a sizable deposit, early on during your ownership the every month operating profit from your property business is likely to be little or non-existent. But over time this profit will increase as the amount of rent you can charge increases at a higher rate than the jogging costs. Naturally these profits will be subject to normal income tax rules.
A further benefit of investing in property is that you might be able to purchase cheaply a run-down or 'distressed' property & fix it up or create it further. Properties like this can still be found if you look around carefully. Naturally, investing in this type of real estate can still produce sizable gains. This is something you certainly cannot do with traditional stock market investments.
However, returning to the initial query about whether real estate investing is still a viable option when current prices appear to be nearing their peak: yes, it can still be so, but you might need to be more creative & prepare to be in for the long haul. Property 'flipping' methods that worked successfully yesterday, might not work at all well tomorrow.
You might also think about diversifying in to overseas real estate markets. Whilst this will need greater study & analysis, & there's plenty of more legal issues to think about, seeking out what appear to be undervalued international real estate opportunities has the potential to be highly profitable if handled correctly.
Naturally, you ought to always seek the advice of professionals, both financial & legal, before investing in properties of any description, when thinking about investing overseas. There might be major implications to your overall taxation. Risks can also be substantially higher when you are not there to oversee your investment in person.
Now let's take a look at the mechanics of buying property. Here it can be seen that investing in real estate is different from most other traditional investments such as stocks. With real estate you can often borrow up to around 80 percent of the value of a property, sometimes even the full value & beyond under special circumstances. Thus a more modest investment of say 20 percent of the value can be used to buy & control the full value of the larger investment. Naturally, if the value of your investment increases, I.e. property prices rise, then the value of your real estate investment also increases. If so, then you are in to profit, including that on the money you originally borrowed.
First of all, & most obviously, the supply of building land around the world is limited, even when taking in to account landfill opportunities. Since the world's population is growing & the demand for housing ever increasing, then there would appear to be a never-ending & increasing requirement for real estate of all types.
Borrowing in order to invest in real estate makes real estate a type of leveraged investment. But if you know anything about leverage, you will realize that leveraged investments can also go against you. What, for example, if the property you purchased for $300,000 decreased in value to $240,000? Even though the value only dropped by 20 percent, you actually lose 100 percent of the original $60,000 investment. & if you have a mortgage on this property making up its full purchase price, you will actually need to pay money to the mortgage provider in order to cover the costs of selling the property. That is in addition to the loss of the whole of your initial investment.
Naturally, there will be costs associated with real estate investing (such as legal fees & property maintenance, taxes, etc), but these are usually little in comparison with the potential gains.
So, as you see, investing in real estate is something to be taken seriously & should not be completed with money which you might need for other things in the near future. Investment in property is more secure as a long-term investment. In the above example, if you could have held onto the property & not sold it, the loss would purely have been 'on paper'. In all likelihood, over time the value of the property, unless grossly overpriced when you originally bought it, will rise & you will likely not only recover the full value of the initial investment, but also possibly make a lovely profit when you do come to sell.
Another reason that real estate is a popular investment is that there's profits to be made from it whilst you are the owner. In addition to the tax-saving benefits (in that any tax due on the property's increase in value doesn't become due until it is finally sold), you can also make additional money from renting out the property. This can often cover all your jogging costs of the property, and providing a profit on top.
Unless you make a sizable deposit, early on during your ownership the every month operating profit from your property business is likely to be little or non-existent. But over time this profit will increase as the amount of rent you can charge increases at a higher rate than the jogging costs. Naturally these profits will be subject to normal income tax rules.
A further benefit of investing in property is that you might be able to purchase cheaply a run-down or 'distressed' property & fix it up or create it further. Properties like this can still be found if you look around carefully. Naturally, investing in this type of real estate can still produce sizable gains. This is something you certainly cannot do with traditional stock market investments.
However, returning to the initial query about whether real estate investing is still a viable option when current prices appear to be nearing their peak: yes, it can still be so, but you might need to be more creative & prepare to be in for the long haul. Property 'flipping' methods that worked successfully yesterday, might not work at all well tomorrow.
You might also think about diversifying in to overseas real estate markets. Whilst this will need greater study & analysis, & there's plenty of more legal issues to think about, seeking out what appear to be undervalued international real estate opportunities has the potential to be highly profitable if handled correctly.
Naturally, you ought to always seek the advice of professionals, both financial & legal, before investing in properties of any description, when thinking about investing overseas. There might be major implications to your overall taxation. Risks can also be substantially higher when you are not there to oversee your investment in person.
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