Real estate is usually considered to be buildings and buildable land, including offices, industrial warehouses, residential buildings, retail space and residential houses and apartments.
Real estate is a form of tangible asset, one that can be touched and seen, as opposed to financial claims that are recorded as pieces of paper.
Real estate investment represents investment in an immovable asset – land and the permanently attached building and improvement to it.
Real estate can be invested privately or through pooling of funds, such as in partnership or Real Estate Investment Trust (REIT)
Why invest in Real Estate?
Potential higher return through leverage. Leverage is the use of borrowed money to increase the rate of return earned from real estate investment. In average, real estate investors have been able to borrow up to 90 percent of the value of any property owned or acquired. Leverage can be advantageous when the investment earns a higher rate of return than the interest on the borrowed money.
Leverage also enables an investor to control more property with a given amount of money. An investor can leverage by stretching out the repayment schedule or by refinancing. By maintaining high leverage, an investor may pyramid investment more quickly. Pyramiding is controlling additional property through reinvestment, refinancing and exchanging. The objective is to control the maximum value in property with the least resources. Needless to say, pyramiding carries a high risk of a total wipe-out during a recession.
Purchasing power protection. Real estate usually offers protection against inflation. Whereas most capital assets tend to lose value in terms of purchasing power or constant dollars in inflationary periods, adequately improved realty, especially apartments, shopping centers and selected commercial properties, tend to gain value as measured in constant dollars. In the absent of rent and price controls , real property, like a ship upon ocean waters, floats above its purchasing power constant dollar line irrespective of depth or rise in the level of prices. For this real-value holding power to be true of a specific parcel of income real estate, the property must be well located, have rentals that can be adjusted periodically, and not be subject to sudden sharp increases in operating costs.
Pride of ownership. Many real estate investors gain identity by being” in the game” or by being “shrewd operators”. Some investors also realize great satisfaction from owning something tangible that can be touched, felt and shown to friends and relatives.
Control. The immediate and direct control of an owner over realty enables the owner or an agent to make continuing decisions about the property as a financial asset and as a productive property. This control enables the investors to manage property to meet personal goals, whether they are to manage property to meet personal goals, weather they are to maintain the property for maximum rate of return. Many owners experience a great sense of power and independence in this control.
Entrepreneurial Profit. A last important advantage is that added value may be realized by building or rehabilitating a property. Many investors also developed property. Other investors combine real estate investing with brokerage or property management.
Key factors to consider in real estate investments
☺ Planning and zoning effects – such as establishment of Specific Economic Zone which increases demand for lands and properties.
☺ Infrastructure improvement such as extending roads, extending LRT/MRT station or better electricity supply quality will increase demand at suburban area.
☺ Number of households and income levels. Higher number of households and with increasing income will increase the demand for property.
☺ Degree of local economy activities where location with active economy activities will attract more resident to “migrate” closer to work place which increases demand for properties.
☺ Prestige consideration – Property at location which considers as higher class residential area or develops by well known developer will potential increase the demand and price appreciation of the properties.
☺ Conveniences – properties located close to transportation terminal such as LRT/MRT station, shopping mall / retail stores and school will potentially faces increases in demand.
☺ Tax consideration – Return from investing in raw land will be in the form of capital appreciation whereas for retails spaces will be from both rental income and capital appreciation. Rental income is subjected to taxes while capital appreciation might not.
☺ Facilities and Management Services – Main consideration for service apartment and condominium. High quality management, adequate facilities with reasonable management fees will increase the demand and price appreciation of the property.
☺ Quality of building which influences long term value of the property. Lower quality building with higher wear and tear will increases operating cost in the future, which reduces the value of the building.
