To some people, real estate is just a matter of finding basic shelter to live in. Others have seen the potential of real estate being an investment class that protects cash from inflations and builds wealth overtime. Stories of earning big profits through real estate investments are everywhere. Here are the common ways that investors use to generate wealth using real estate.
Collecting Rental Yields
Collecting rents are probably the most commonly well known method of gaining your return on property investments. Renting is a short term temporary loan of your property to another party in return for regular monthly payments.
Location of property makes or breaks your renting strategy. Highly active commercial areas and hot property areas are one to look forward to ensure a steady demand of tenants. Furthermore, being located in a prime area will allow you more room to demand for a higher price.
When renting out properties, you must know which tenant are you specifically targeting. Renting out properties near universities may be unsuitable for families looking for a home due to the noise while renting out to students would be easier.
Collecting rents are a form of income and therefore it will be charged under the income tax. Other charges on property include the assessment tax and quit rent aside from the usual maintenance and renovation charges of holding a property.
Investing in Reits
Reits (Real Estate Investment Trusts) are companies that own a portfolio of real estate that generate income and allow individual traders to acquire a certain share of the portfolio.
REITs operate similarly to mutual funds and invests in properties ranging from hospitals, hotels, office buildings, apartments and many more.
Depending on the REIT, the portfolio can contain various types of properties that diversify risks or it can even be focused to one asset class or location, with varying risk and rewards.
Like mutual funds, you can invest in reits through the open market that are open to be purchased from the open stock exchange or investing in a mutual fund focused on real estate.
Alternatively there are many private real estate funds that aren’t listed on the stock exchange.
Investors earn money through reits the same way as investing in stocks, dividends are payed to investors sourced through rental incomes and selling of assets.
Selling off your REITS will gain you profits if you sell off your shares at a higher price than when you first bought it.
Flipping properties are defined as making a quick resale of a property after you purchase it to make a quick profit from the capital appreciation.
The main perk of doing this is to take advantage of a hot property development, such as an in demand lifestyle condominium in central KL or to sell of a newly renovated property before depreciation kicks in.
Investors interested in flipping tend to look for under-priced homes or properties that have the potential for growth, renovate them and eventually sell them at a high price.
Another way is to purchase a unit in an uncompleted project and as the construction slowly develops so does the price. An investor can then gauge on when is the best time to sell after the project has been completed.
When he finds a right buyer looking to pay for that particular property, he will profit from the difference.
Flipping a property can be quite tricky given that you have to choose a property with high potential for profits.
One thing to note is that to prevent speculation, the government imposes a high Real Property Gains Tax for properties sold less than 5 years.
Buying and Holding Land
Traditionally, buying land has been a top priority in previous generations where land supply is more abundant and demand due to the perceived uses and potential of owning land.
Older generations have believed that the amount of land you own signifies the amount of wealth you have, therefore the trend of land accumulation was rife during those times.
At this time, land prices have gone through the roof due to scarcity and the demand for new development projects.
If you are interested in owning land, there are some advantages to investing in land over other types of real estate investments. Owning land has much less risk and maintenance compared to owning an existing house.
Much land is the same as any other land, therefore, is reassuring knowing that there is a demand for it compared to selling a home consisting of many other factors that require matching to the buyer’s taste.
The most common reason for buying land is the potential that the land brings. Land uses can be converted by applying and paying a premium to convert its usage.
Depending on economic situations and current market demands, the development of land can be revised to suit the current need. Is it high time you move out of your old house? You can develop your dream home over it. Looking for some side cash flow? Get it develop into a housing project. Actually, why not cultivate a durian farm for unlimited tasty treats.
Have you thought about venturing into the real estate investment space to generate income for you and your family? Maybe you are looking to diversify your investment risks or even to protect your cash from inflation and depreciation. Whichever the case, real estate brings large potential for profits as a stable asset class.Find your dream home today!