Private real estate investor
People save to achieve some material objective, like buying a house, having a comfortable retirement, etc. These savings are made up of some small amounts that are set aside regularly for these objectives. Unless these savings are multiplied, by investing in some investment options available in the market, the value therein will be lost over a period of time due to inflation. Therefore, the objectives can remain unachievable.
There are many types of investment options. Returns on these investments vary in tandem with risks associated with them. For example, investments in government bonds carry least risk as the Federal government guarantees them. Therefore, returns too are lower. Therefore, investors must first identify their risk appetite levels before investing. One investment option is real estate market. It is open to both private and public players. Compared to other investments, it is less risky. Unlike gold and diamond, real estate cannot be easily snatched away at knifepoint.
It cannot be damaged or stolen like artifacts. Its value does not see a lower swing touching zero like stocks, even if there are earthquakes or hurricanes in the region, which means that even in the worst scenario, investor will not be penniless (provided, of course, that the investor has done a proper due diligence relating to title of the property). Returns accrue on the property at somewhat lower rates. However, long-term holders cannot miss those sporadic spectacular returns. What is an added advantage is the fact that the investor pays tax on these returns only when the property is sold, notwithstanding the periodic increase in value of the investment. Therefore, the returns continue to accumulate and compound without the investor having to pay any taxes on them. The reasons some investors prefer to invest in real estate is that if and ever they need some funds, they can always mortgage their real estate properties, and obtain loan based on such accumulated higher values of these properties.
The words private real estate investors are a bit misleading. In fact, they refer to those investors who invest in private or non-government or non-public properties. For example properties like condos, apartments, waterfront communities, hospitality properties, commercial properties, etc. These investors need not essentially be private individual investors, though quite a few are. As property prices are high, most private real estate investors opt to take mortgage loans on the properties they choose to acquire. The mortgages are amortized over a long period, which may extend from 10 to 40 years. These loans are granted based on repayment capacity of the investor. As lenders accept only the properties that have clear title for mortgage purposes, due diligence becomes a necessity. It is also necessary to examine public real estate records for the purpose, which may contain information about the problems related to the property. Public real estate records are real estate records maintained by the government for the benefit of public. Real estate investment trusts and other financiers too buy such private properties. Primarily, investments in such private properties are contemplated with a view to generate a regular rental income, and eventual skimming of capital appreciation on sale of these private properties.
Like shares, these private properties do not have uniform rental yields. Nor are they likely to register uniform capital appreciation across the country. It becomes necessary to study the precedents of the locality, upcoming businesses in the vicinity, federal governments plans for nearby lands, notified land use, etc., if the investment is solely for the purpose of future capital appreciation and rentals. Investors also consider other factors like climate, pollution, accessibility to transport and communication, etc., as these influence the prices of these private real estates. Investors may also have personal preferences for location. There are some mathematical and statistical methods evolved over the period to ascertain the risks and returns associated with such private real estate investments, which can help investors in assessing whether such investments fit their long-term goals.
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