No investment can promise either profit or the protection of your principal. But, the real estate market has been one of the safest and most lucrative asset classes for investors in Pakistan. It usually provides built-in appreciation that keeps pace with inflation while also allowing the potential for significant gains.
For beginners, real estate investing can seem like a difficult challenge. So we have produced this handy guide for complete newbies. With it, you will understand the jargon. And you will be capable of choosing a strategy and can easily get started with this potentially profitable investment today.
What Is Real Estate Investing?
In general, investing in real estate means purchasing, leasing, or acquiring usage rights to a piece of real property. But there are various ways to do this.
Real estate investing can be as simple as owning shares of a mutual fund that invests in real estate or as involved as completely buying and flipping properties for profit.
What is the difference between Real Property and Real Estate?
It is essential to know the difference between real property and real estate. These two terms are often mistakenly used conversely, even by industry professionals.
“Real property” is defined as the benefits, interests, and rights inherent in the ownership of the real estate. “Real estate” applies to a specific region of land and all improvements (anything permanently attached to the land, such as a building). So real estate investing can mean purchasing a bundle of land and leasing mineral rights. And it can also refer to renting and owning residential housing.
Simply stated, while investing in real estate, the purpose is to put money to work today and allow it to grow so that you have enough money in the future. The return, or “profit,” you make on your real estate investments must be sufficient to cover the risk you take, payable taxes, and the costs of owning the real estate investment such as insurance, utilities, and regular maintenance.
Real estate investment can be as conceptually simple as playing a monopoly board game when you understand the basic factors of risk, investment, and economics. To win, you purchase properties, avoid bankruptcy, and generate rent so that you can get even more properties. Still, bear in mind that “simple” does not mean “easy.” If you make a blunder, outcomes can range from minor inconveniences to significant disasters.
The Four Ideal Ways Real Estate Investors Make Money
While investing in the real estate market, there are various ways you can make money:
Real Estate Appreciation
It is when the property progresses in value due to a change in the real estate market, the land around your property becoming busier or scarcer like when a major shopping center or mall is built next door or upgrades you put into your real estate investment to make it more attractive to potential renter or buyers. Real estate appreciation is a complicated game. It is a lot riskier than investing in cash flow income.
This means of profit is ideal for people who are looking for a long-term investment in a market where property prices are steadily rising. A long-term buy and hold strategy is almost always a better choice, given that over the long term, real estate prices have almost always appreciated.
Cash Flow Income
This type of real estate investment concentrates on buying a real estate property, such as a flat or apartment building, and operating it, so you collect a stream of cash from rent, which is the money a renter pays you to use your property for a particular amount of time. Cash flow income can be made from rental houses, well-run storage units, office buildings, apartment buildings, car washes, office buildings, and more.
Real Estate Related Incomes
It is income earned by “specialists” in the real estate market such as real estate brokers, who make money through commissions from selling and buying a property, or real estate management companies who keep a percentage of rent in exchange for running the day-to-day services of a property. This kind of real estate related income is simple to understand. For instance, a hotel management company gets to keep five percent of a hotel’s sales for taking care of the day to day operations such as washing the towels, hiring maids, running the front desk, and mowing the lawn.
Ancillary Real Estate Investment Income
For some real estate investors, this can be a huge source of profit. Ancillary real estate investment income comprises things like laundry facilities in low-rent apartments or vending machines in office buildings. As a result, they serve as mini-businesses within a bigger real estate investment, allowing you to earn money from a semi-captive collection of customers.
Tips for Buying Investment Properties
There are various ways to buy your first real estate investment. If you are buying a property, you can use debt by taking a mortgage out against a property. The use of leverage is what brings many real estate investors because it lets them obtain properties they otherwise could not afford. Though, using leverage to purchase real estate can be risky because, in a falling market, the regular payments and interest expense can drive the real estate investor into bankruptcy if they are not careful.
Nonetheless, keep all the factors in considerations that will affect your property value while buying. And select the land where the future is bright of that specific area. For Instance, Al-Ghurair Giga is the future market of Islamabad, as it brings the most beautiful designed Malls like Giga Mall, D-Mall. They have also built luxury apartments that fulfill the current lifestyle requirement of people, and they are Lignum Tower, Defence Tower I, Defence Tower II, El-Cielo, El-Cielo Prime, Defence Executive, and many more.
When you are all set to begin the process of real estate investing, you will want to choose which of the real estate investment type is most appropriate for you.
Are you in a favorable Market?
Even if you do have all the knowledge, skills, and capital you need on paper to begin investing in the real estate market, it does not mean that it is a good idea. If you are witnessing a market that is on a declining trend or is at the top of a bull market, you will possibly not be able to profit off a real estate investment success.
Still, even if your market is in bad shape, you can seek investment opportunities by looking outside of your area and buying properties in more favorable climates.
Do you have the funds to invest?
You must never invest any money into a down payment that you are not prepared to lose, so do not go all-in on an investment property that would put you in a terrible financial situation.
Are you prepared enough to take on the commitment that comes with the investment?
If you plan on leasing or renting your property, be well prepared for all of the responsibilities that come along with it. You will need to handle tenant screenings, rent collection, maintenance, repairs, and many other tasks.
Ask yourself honestly whether you can take on these duties. If not, you will need to be willing to pay for a company to assist.
The Bottom Line
Real estate has continuously proven to be a highly successful investment. The best part is, this is the case no matter where you are starting out, and there is no reason real estate should be off-limits. Various investment strategies can serve as a gateway into a successful long term career in real estate.
Real estate investing for novices does not have to be overwhelming. Begin small, do your complete research, and consider your short-term and long-term goals. Talk to specialists and learn more about investing and the market where you wish to buy, and most importantly, do not rush!