Real Estate Investing – Opportunities & Risks

Before investing in property, or, for that matter, any investment option, it is important to gain good insight. You don’t need a lot of money or industry knowledge to make your first real estate investment, just a little experience and some market knowledge. 

Simply put, when you invest in real estate, your goal is to put your money to work today so that you have more money in the future.  You may invest in buying a REIT or buying a brick and mortar house near you, investing in real estate can be a great way to increase your wealth

A real estate entrepreneur or a real estate investor is someone who actively or passively invests in real estate. An active investor may buy a property, make repairs and/or improvements to the property, and sell it later for a profit. As long as real estate investors use their properties to generate rental income and wait for the perfect opportunity to sell, it is feasible to build a robust investment program without paying upfront. 

One of the most important ways for investors to make money from property is to become landlords of rental properties. When you think about investing in property, the first thing that comes to mind is probably your home. But when it comes to choosing an investment, real estate investors have many other options. 

On the flip side, active real estate investment is heavily dependent on cash flow and capital intensive due to the capital that can be generated by mortgage debt. It is subject to high-interest rates, high property taxes and high insurance costs. It becomes a risky investment if investors do not understand and manage these factors well.

There is a sub-specialization in real estate investment, called “real estate development,” which is generally seen as a better investment opportunity than the more traditional investment options. Real estate development, or property development, is a business process, encompassing activities that range from the renovation and re-lease of existing buildings to the purchase of raw land and the sale of developed land or parcels to others. 

Real estate developers are the people and companies who coordinate all of these activities, converting ideas from paper to real property. Developers buy land, finance real estate deals, build or have builders build projects, create, imagine, control, and orchestrate the process of development from the beginning to end. Developers usually take the greatest risk in the creation or renovation of real estate—and receive the greatest rewards. 

Typically, developers purchase a tract of land, determine the marketing of the property, develop the building program and design, obtain the necessary public approval and financing, build the structures, and rent out, manage, and ultimately sell it.

A passive investor might hire a real estate firm to find and manage an investment property for them. This can be a lucrative way to generate passive income and build long-term wealth, and it makes it a great time to invest in property now. 

Not so long ago, the average investor could not dream of investing in real estate. Now, anyone can participate in real estate investments. You might be an accredited investor using the services of your financial planner, broker-dealer or you could be looking to invest a minimal amount through online platforms. 

Online real estate companies use the crowdfunding concept to bundle the money of ordinary investors who are willing to invest in a private real estate project and are usually a good way to test the waters if you want to invest in real estate but don’t want to commit too much in terms of time and money. 

REITs (Real Estate Investment Trust), simply put, provide real estate without the need to own, operate or finance real estate. They are closed-end investment companies that own assets related to real estates such as buildings, land and real estate securities. They sell on the major stock market exchanges similar to common stock. 

How does it work? REITs raise money from a collection of investors and provide them with access to real estate.  REITs allow investors to invest in a variety of real estate investments that are usually not directly available to individual investors. 

They use this money to purchase and develop real estate in the United States, Canada, Europe and other parts of the world. Publicly traded REITs raise money for their portfolios by selling shares on an exchange. Private REITs must find individual investors. 

They can be a solid investment for dividends – paying shares and for stock market investors looking for regular returns.  REITs are legally required to distribute at least 90% of their taxable income to investors. Income comes from rent, managing fees and leasing of the properties.

There are other companies that own and manage properties directly, rather than acting as a broker that pairs investors with specific projects. As a result, they charge no management fees on their investments. A big plus for less well-heeled investors, the minimum investment could be as low as $500 and these companies are open to non-accredited investors. One downside: All dividends are reinvested, so investors do not realize income from the investment until the properties are sold.

Although there are many options out there for investing, none provides a complete solution which allows individuals to truly compare offerings. We started Metavest after experiencing the disconnect between the world of investments and the reality of most investors. 

By helping security issuers, including REITs, significantly bring down their cost of managing investment funds and onboarding investors, we are able to make the world of private capital accessible to the general public. Our goal is to help you build wealth over time regardless of your budget by delivering value to all stakeholders in the ecosystem.

Many investors have traditionally turned to the stock market as a place to put their investing dollars. While stocks are a well-known investment option, not everyone knows that buying real estate is also considered an investment for almost anyone, especially with companies offering real estate as financial products. Although real estate is not nearly as liquid (we’re working on it) as the stock market, the long-term cash flow provides passive income and the promise of appreciation. 

Under the right circumstances, real estate offers an alternative that could be of lower risk, yield better returns, and offer greater diversification. Whether it’s planning for retirement, saving for a college fund, or earning residual income, you need an investment strategy that fits your budget and your needs.