Real Estate Investment-I


Real estate defines the land a person may possess which includes buildings, structures as well as the natural resources on the land. Since time immemorial land in all its varied forms has exercised a fascination for man, to own it, tend it and eventually identify yourself with it. Land in the form of agricultural fields, privately held land for residential purposes, later on for industrial or commercial purpose, for rentals or ownership continues its hold, even in this age over normal people’s lives.

Buying a property as a primary residence is a milestone in a person’s life and is also the single largest investment he can make. The buying and selling of property as a business investment is quite an old practice, but since the past fifty years or so real estate investment is treated as a prime case of capital budgeting by using state of art investment analysis and major technological advances to predict the income streams it may generate along with the associated risks

Real estate investment is essentially long term in nature and investment professionals insists that an investment portfolio should have at least 5%-20% investments in real estate.

A home is a primary real estate investment, it serves the dual benefit as an anchor of one’s existence and also over the years its value appreciates. It provides both emotional and financial benefits.

Interest in real estate is of two types:
  • Ownership interest:

The investor is entitled to full ownership of the property. He assumes all the risks and responsibilities of a landowner such as repairs, losses due to natural calamities and payment of all taxes. If you own a home you have ownership interest.

  • Leasehold interest:

exists when a landowner passes on some of his rights on to a tenant in exchange for a payment of rent. If you rent out a property you have leasehold interest in the real estate.

As a real estate investor you will acquire a ownership interest in a property and then earn an income on the investment by issuing a leasehold interest to tenants

Some income generating real estate investments are:

Real Estate Training programs and some career choices
Basic rentals:

small businesses or mainly individuals acquire small houses, apartment units, duplexes which are then rented out leading to a steady stream of income. Rents are charged such that the mortgage on the property plus maintenance is taken care of by the rent amount. Since the individual has an ownership interest it is a hands-on option entailing many hassles but pays dividends in the long run. Real estate investment for individual can create substantial ownership pride, as it is a physical building, which you can see, touch and show off. It is tangible and enhances your prestige among peers

Real estate investment groups:

If you want to own a rental property without the trouble of being a landlord a real estate investment group is an ideal option. A real estate company will purchase or construct a set of apartment blocks and then sell individual units to private investors. A single investor may buy one or many units but the firm operating the investment group collectively manages all units. It takes care of maintenance, repairs, security, vacant units as also of screening potential tenants and in lieu of these duties take a percentage of the rent.

In the standard investor group the lease is in the investors name and it is a hands-off approach to renting your property. You get the rent(albeit reduced) but the tenant troubles are taken care of by the company.

Preconstruction real estate investment:

It is the practice of purchasing property in the initial stages of construction. Profit is gained from selling at a later stage and sometimes years later at a substantial profit.

  • Cash-rich institutions or groups such as REITS purchase large income producing real estate properties
Real estate trading:

In this type of investment a bargain property/house is purchased and immediately resold at a profit. This is called flipping of property. It is a speculative operation and as such the risks are greater. The hitch lies in knowing which properties will appreciate in value and when to buy. If the property is not resold immediately then you have money tied up in an investment that may or may not show a profit.

When investing in real estate one of the basic tasks is to decide which market is appropriate for an investor. Different markets produce varying levels of risks and returns.

A private market is suitable for individual investors. In this type of market an investor will have ownership rights to a property and earn rent by leasing out the property. Investing in a public real estate market means one can buy a share or unit in a publicly traded real estate company such as a REIT.

Real Estate Investment Trusts:

REITS are institutions that invest in different kinds of real estate assets, which include shopping malls, offices buildings, hotels and mortgage served by real estate. There are two types of REIT:

Equity REIT:

The most common type of REIT, they invest in or own real estate and generate money for their shareholders from the rents they collect.

Mortgage REIT:

They lend money to developers or invest in financial instruments secured by mortgage on real estate. Their revenues are generated by the interest that they earn on the mortgage loan. Individuals can invest in REIT by purchasing their shares directly on an open market or by investing in a mutual fund that specializes in public real estate.

REIT receive special tax benefits and hence offer their investors high yields.

Some characteristics of real estate investment:

No fixed time of maturity:

unlike bonds or equity real estate investment, property owned by a person does not mature in a period of time. Due to this it is not unusual for people to hold on to property for generations. This allows a person to hold and sell whenever it is appropriate.


It is real, you can visit and show off. There is physical contact with the investment. If something goes wrong you can fix it.

Requires management:

this investment needs a hands-on approach, from landscaping, roof repairs, plumbing and overall maintenance you need to be constantly caring for it.


only location determines the value of a real estate investment.