Investing into Real Estate is gradually become a popular ideas even among young Investors. This is because, some of the best real estate investments provide a steady source of monthly income, while also growing wealth through long-term asset appreciation. Real estate investments, therefore, are rather unique and has its own exceptional peculiarities in styles, content and operations as compared to many other investments.
However, there are some unique and unannounced characteristics of real estate investments which an investor must carefully understand before venturing into it that will help you formulate a profitable strategy to take advantage of these unique features, while also avoiding possible pitfalls inherent in real estate investing.
African Housing News brings to you some of these unique characteristics of real estate to keep in mind while considering investing into the current big business market.
#1 Durability
Real estate investments can be extremely durable and build multi-generational wealth.
Unlike other investments that have fixed maturities, there is no fixed maturity for a real estate investment. You can sell it in a few days if you see a good opportunity, or you can hold it for decades. Many of the most profitable pieces of real estate in America and cities in other developed nations have been held for several decades, and some of the profitable real estate in Europe has been held by the same trust or family for centuries.
#2 Lack of Transparency
Some markets, such as stocks and commodities, are regulated to be as transparent as possible. Investors have access to real-time market information, and are able to make immediate changes to their portfolio.
Real estate works very differently. When an investor buys a property, there is a risk that the seller is withholding information, or that the seller is unaware of problems.
Therefore, research and inspections are important when buying real estate. And if you buy a property sight unseen, such as at auction, be sure to take the higher risk into consideration when making an offer.
#3 Heterogeneity
Location, location, location. All real estate is local, with every property being unique in terms of location, physical structure, and financing.
As a result, investors can leverage local knowledge of a community to acquire and manage a highly profitable portfolio of real estate investments. This is why the most successful investors have a team in each geographic area of their real estate investments, because of the heterogeneity of real estate.
#4 Illiquid
Real estate is considered illiquid because it can’t be easily sold without a substantial loss in value.
Even if you are flipping houses, it takes a substantial amount of time to purchase, rehab, find a buyer, and close. And if you own rental income with tenants leasing a property, it can take much longer.
The lack of liquidity is a good thing, though, when it comes to investing in real estate. The illiquidity of real estate contributes to making it a stable, appreciating asset class for long-term investors.
#5 High Startup Costs
The costs of acquiring real estate investments are higher than many other types of investments. Typical costs include purchase and closing costs, rehabbing, and financing.
The old adage, “it takes money to make money” applies to real estate investing. But, the reward is high in the form of cash flow and profits.
Like illiquidity, the high cost of acquiring a real estate investment is one reason property investing can be so profitable. The costs limit the number of investors in this asset class, and therefore add to stability and long-term appreciation.
#6 Investment Vulnerability
Risks associated with real estate makes investing in this asset class very profitable for savvy investors who have a proven plan for success.
Real estate investments can be fluid at times, and change as cities and neighborhoods change. Therefore, real estate is not a hands-off static investment, but one that requires constant attention.
The best investors either personally manage their investments, or hire an expert team to locate, rehab, and manage real estate investments on their behalf.
From the above, one can see that real estate investments have unique characteristics that can enable a smart investors to make a great deal of money, if he knows how to leverage these characteristics to his own advantage.
