How to join the real estate market?
Probably the vast majority of you live somewhere. It may be a house, a flat, or a room at a friend's place. It doesn't matter, because you're already part of the market anyway. However, it's worth thinking about how you can start profiting from it and not just incur costs by paying rent or mortgage instalments.
It all depends on you and what your expectations are. There are people who just need a piece of their own space where they can lie down and relax after a hard day. However, for those who see this as a potential to gain extra income, there are several options to consider.
Let's start with buying a property. The vision of becoming an owner is very tempting. However, it requires a lot of capital for the purchase and associated costs such as a commission for the agent, renovation or furnishing. This option is available to a small group of people with larger funds.
How about a mortgage? Yes, it is a solution, but it is connected with a commitment for many years and lack of certainty that we will be able to cover the credit with income from the lease. Then there is the question of finding a property that suits you. If both are to be rented, it is best if it is not far from where we live. It is worth visiting it from time to time to see its condition.
Are there any properties in your neighbourhood worth looking at? Probably yes, but are you sure? You can rather forget about real estate abroad. Travel costs will eat up our rental income, besides not knowing the local area as well as the domestic market. To sum it up, if you are sure that the property you are interested in has potential and you can afford to buy it - don't wait. Such an opportunity may not come again. What are the other options?
How about a REIT? What even are they? In a few words, it is an investment fund that invests resources into diversified real estate; bought properties are usually those intended to be rented out. It is a very interesting solution. We invest our money together with other investors. Definitely cheaper than buying independently because we can dedicate smaller capital towards it. We receive shares called participation units, which confirm that we have money deposited in the fund. The fund is valued, which means that its value is updated from time to time and we benefit from the increase in the valuation of the unit or, alternatively, we receive dividends paid out from time to time. So are there any risks? Unfortunately, yes. When we deposit money we are not guaranteed a profit or the deposit we put in. We also pay fees for participation or for the management of the fund by the institution that created it. This means that our expected returns will be reduced, sometimes significantly. On top of this, we have no certainty about the investment policy or any guarantees. In the worst case, we may lose our savings. This is an option worth considering, but it depends on the individual decision. There are many solutions available on the market based on real estate, however, their prevalence is not so high and they are treated as high-risk investments.
What is a condo? A very popular solution for hotels or resorts. Unfortunately, they are also intended for wealthier individuals. How does it differ from buying a property on your own? When buying a condo, we have the management of this property and its purpose is usually short-term rental. There are attractive rates of return, but we also do not know for sure if they will be realized. It is also worth considering whether the investment we are interested in will be attractive to rent all year round or only seasonally. Again, part of the profit is used to pay for services such as cleaning or maintenance, meaning sharing rental income with the management company. It is also worth taking into account the institution's reputation to which we want to entrust our funds because most often we make an investment when construction has not yet started.