Investing in Real Estate
Real estate investing has long been hailed as a powerful vehicle for wealth creation.
In this site, we will delve into the world of real estate, exploring the reasons why it’s a lucrative investment, how to make money in the real estate market, and the essential factors to consider when choosing the right property.
Let’s embark on this journey together and unlock the potential of real estate investing.
“Ninety percent of all millionaires become so through owning real estate.
More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.”
– Andrew Carnegie, billionaire industrialist.
Why Invest in Real Estate
a) Tangible Asset
Investing in real estate is like securing a tangible piece of the financial puzzle.
Unlike stocks or bonds or cryptocurrencies, real estate provides a physical asset – a piece of land, a residential property, or a commercial space. This tangible nature offers a sense of security and stability.
b) Multiple income streams
Real estate offers multiple income streams – both active and passive.
You can earn passive income through renting out your properties to tenants or through managing AirB&B properties.
When you sell off a property, you can also earn capital gains through property price appreciation, if your selling price exceeds your purchase price.
However, be mindful that you are required to pay income taxes on rental income, or capital gains taxes upon the sale of a property.
c) Property is an asset class that has demonstrated its ability to grow over time
Properties grow in price over time, and it is more obvious for those in cities that are highly populated.
It boils down to supply and demand dynamics.
When demand increases alongside population growth and the development of a city/township, the property prices in that area will grow as well.
Look at the property that your parents are living in, what was their purchase price a few decades ago?
What is the valuation now in the property market?
The property value can easily double across 10-20 years, or even within a shorter timeframe, depending on the timing and price when the property was first purchased, as well as the attractiveness of the property’s location.
d) Hedges against inflation
Real estate acts as a hedge against inflation, preserving and potentially growing your wealth over time.
As the value of properties tends to rise with inflation, real estate investments provide a reliable shield against the eroding effects of the rising cost of living.
e) Benefits from Leverage
With real estate investing, you do not have to pay the full sum of the property price at the start.
You can pay only the mandatory down payment (in Malaysia it is 10% for your first few residential home loans, in US it is 20% for some cities), and borrow the remaining balance from your local bank. This way, you are actually using the bank’s money to invest in properties, without using all your cash.
By using leverage, this can actually increase your Return On Equity (ROE), which enables you to earn higher returns than if you just purchase a property using 100% cash.
For example, you bought a house that costs $200,000 but only paid a 20% down payment which equals to $40,000. You borrowed the remaining $160,000 from a local bank. 2 years later, the house price rose to $250,000 which equates to a gain of $50,000.
By forking out only $40,000 instead of the full $200,000, you still get to enjoy a profit of $50,000 less any capital gain taxes.
What are the ways to make money from real estate?
a) Buy & Rent Out Properties for Passive Income
Buy a property and rent it out to tenants that will pay monthly rental, allowing you to make passive income from rentals.
b) Buy Properties & Manage AirB&B Rentals
Managing an AirB&B property can enable you to earn higher income than if you were just renting out to a single tenant.
This is because you are able to charge a on a nightly rate basis, which is typically higher than the daily income you would obtain if you were just renting your property out to a single tenant for the whole month.
The higher the demand for AirB&Bs in your area, the higher the nightly rate that you can charge.
It is important to have AirB&Bs in an area with high demand (whether close to public transport or tourist attractions etc), in order to ensure a high occupancy rate each month.
However, for this option, you will need to be more involved compared to the normal buy-and-rent option, as the Airb&b management tasks include marketing your property to AirB&B customers, dealing with new customers day in day out, as well as cleaning and maintenance duties. You can choose to subcontract these tasks out to a property management company, but this may incur additional management fees. Nonetheless, it can still be worth it especially if your property is located in a good location.
c) Fix & Flip Properties
Buy undervalued properties (such as distressed properties, renovate them, and sell at a higher price.
This method requires more work as you need to conduct research and network in order to find undervalued properties, and you need to remodel or renovate the property to make it more attractive so that you can sell to make a profit.
d) Buy Properties during Prelaunch or at Group Discount to Sell Higher
During the prelaunch phase of a new property project, typically the developer will be willing to sell the yet-to-be launched property at a lower-than-market rate. As the project progresses throughout the multiple stages of construction, the price may increase significantly.
As such, it can be a good method to buy properties located in high-demand areas during the prelaunch phase at a lower price, and hold for a period until the property price appreciates, in order to sell for a profit.
If you join property groups or are in touch with a network of property brokers and investors, you can also take part in group discount schemes whereby you can purchase a property together with a group of buyers (for example 100 buyers join together to pool in funds for the purchase of a 100 units of a new condominium during its prelaunch phase), so that all of you can collectively negotiate with the property developer for a bulk purchase discount, enabling you to buy the property at a lower price than if you were to buy it individually.
Summary
In summary, real estate is a tangible asset which is a good hedge against inflation. Property prices tend to increase along with economic growth.
The capital required to invest in properties is much higher than if you were to buy stocks or cryptocurrencies, as you are required to make a down payment in most cases. However, you get to benefit from using leverage by taking a bank loan.
You can make good returns by actively flipping properties and managing AirB&Bs, or just make passive returns by buying properties and renting them out for a stable income.
If you have any questions or want to connect:
i) send an email to: [email protected]; or
ii) send a message via: https://bit.ly/contact-TFF