D. REAL ESTATE

What is Real estate ?
 
A piece of land, including the air above it and the ground below it, and any buildings or structures on it along with its natural resources such as crops, minerals, or water, immovable property of this nature, an interest vested in this; an item of real property, buildings or housing in general.

Real estate can include business and / or residential properties, and are generally sold either by a realtor ( An Agency, or Agent or Broker connected with Real Estate ) or directly by the individual who owns the property ( for sale by owner ). Also the business of real estate, the profession of buying, selling, or renting land, buildings or housing.

Real Estate as an investment option

Real Estate refers to invest­ment in immov­able prop­er­ties which includes land, build­ings, flats etc. Invest­ing in real estate involves the pur­chase of real estate and sell­ing it for a profit.

Basi­cally invest­ment in real estate involves a sub­stan­tial invest­ment and for a long period of time. Major­ity of the investors invest in real estate in the form of buy­ing a house.

But real estate invest­ment is beyond this and the objec­tive behind the invest­ment is to make prof­its. Before mak­ing a real estate invest­ment, the investor should eval­u­ate the risk appetite and invest­ment amount.

The dif­fer­ent types of real estate invest­ments are as follows :–

A) Rental
The main aim of this form of invest­ment is to rent out prop­erty to a ten­ant and earn a con­tin­u­ous stream of rent from the ten­ant. The value of the prop­erty also increases over a period of time. The risk in this form of invest­ment is the owner of the prop­erty has to find out a ten­ant and also need to pay for the main­te­nance expenses.

B) Trad­ing
Basically traders in real estate in order to make a quick profit buy prop­er­ties for a short term ( six months) and sell them at a profit. Traders look out for buy­ing under­val­ued properties / very hot prop­er­ties and sell them at a profit.

C) Long Term Invest­ment
There is a cer­tain group of investors who invests in real estate basi­cally plot of land from a long term per­spec­tive. The objec­tive is over a period of time the value of the prop­erty will rise and the owner will make a profit by sell­ing it. The biggest flaw in this invest­ment is money is blocked for an indef­i­nite period and the appre­ci­a­tion of the prop­erty value is unpredictable.

REAL ESTATE INVESTMENT DEPENDING UPON THEIR NATURE :
 

a) Residential real estate
These are investments or properties such as houses, apartment buildings, townhouses, and vacation houses where a person or family pays you to live in the property. The length of their stay is based upon the rental agreement, or lease agreement.

b) Commercial real estate
These are investments consisting mostly of office buildings. If you were to take some of your savings and construct a small building with individual offices, you could lease them out to companies and small business owners, who would pay you rent to use the property.

c) Industrial real estate
These are investments consisting of storage units, car washes and other special purpose real estate that generates sales from customers who temporarily use the facility. Industrial real estate investments often have significant "fee" and "service" revenue streams, such as adding coin-operated vacuum cleaners at a car wash, to increase the return on investment for the owner.

d) Retail real estate
These are investments consist of shopping malls, strip malls, and other retail storefronts. In some cases, the landlord also receives a percentage of sales generated by the tenant store in addition to a base rent to incentive them to keep the property in top-notch condition.

e) Mixed-use real estate
These are investments are those that combine any of the above categories into a single project. Mixed-use real estate investments are popular for those with significant assets because they have a degree of built-in diversification, which is important for controlling risk.

f) Real Estate Investment Trusts or REITs
A real estate investment trust or REIT is a tax designation for a corporate entity investing in real estate. The purpose of this designation is to reduce or eliminate corporate tax. In return, REITs are required to distribute 90% of their taxable income into the hands of investors. The REIT structure was designed to provide a real estate investment structure similar to the structure mutual funds provide for investment in stocks.

REITs can be publicly or privately held. Public REITs may be listed on public stock exchanges.

REITs can be classified as equity, mortgage, or a hybrid.Those Trusts trade like stocks and own a portfolio of underlying real estate or real estate mortgages. Understanding the differences, advantages, and drawbacks of REITs is so important.

The key statistics to examine in a REIT are net asset value (NAV), funds from operations (FFO), adjusted funds from operations (AFFO) and cash available for distribution (CAD). In the period from 2008 to this writing (2011), REITs face challenges from both a slowing United States economy and the late-2000s financial crisis, which depressed share values by 40 to 70 percent in some cases.

Technically, lending money for real estate is also considered real estate investing but I think it is more appropriate to consider this as a fixed income investment, just like a bond, because you are lending money with property securing the debt. You have no underlying interest in the appreciation or profitability of a property beyond the interest income to which you are entitled.

Likewise, buying a piece of real estate or a building and then leasing it back to a tenant, such as a restaurant, is more akin ( related ) to fixed income investing rather than a true real estate investment. You are essentially financing a property, although this somewhat straddles ( sit or stand with one leg on either side of ) the fence of the two because you will eventually get the property back and presumably the appreciation belongs to you.