Why Do People Invest in Real Estate?
As an asset class, real estate is appealing for various reasons. As an investor, you want your funds managed in a way that creates a healthy return on investment and provides you with security and healthy prospects for the future. Real estate does all this and more, making it a popular asset class for many looking to build wealth. What makes real estate such a good choice?
Over the last 50 years, the average house price in the UK has increased by 464%, an incredible 9.3% per year. This makes real estate, from an investment perspective, very attractive.
Banks love to lend money to people who own real estate. This way, you can leverage the equity you have in your current investments to buy more investments and grow your net worth.
- Rental Income
Rental income is a solid, most stable form of ongoing income. While investing in real estate can be capital intensive, positive cash flow from rent is a powerful incentive to invest in real estate.
- Tangible Assets
Stocks and bonds have their place in any investment portfolio, but tangible assets like real estate give investors a sense of security.
- Tax Benefits
Real estate provides those that own and invests in real estate with many extremely advantageous tax benefits that are difficult to find in other investment avenues.
Is It Better to Develop or Invest in Property?
Every investor wants to maximise the return they receive for every dollar invested. That is why assessing whether it is better to develop the property or invest in it is critical. Which of those two options has more benefits? Which can create a higher level of returns? Are there more risks involved with one path as compared to the other? The answers to these questions can help you decide which investment path is correct.
- Which of the options has more benefits?
Both property development and investment options have great benefits. On the one hand, property investments for buy-and-let or resale are often less work than development projects and often provide a solid ROI. On the other hand, while they tend to be more involved, development projects can often be more profitable with a quicker return on your money. Both are attractive in their way.
- Which avenue provides the best returns?
Regarding real estate, the return on investment depends on the diligence of those researching each project. What are the expected capital gains? At what interest rate is the financing coming through? Stamp duty charges, estate agents, interest rates and many other factors must be considered. Both have the potential to have great returns, but if done right, property development can give you a higher level of return due to the nature of the investment.
- Are the risk factors similar for both investment strategies?
There are risks anytime you are investing in real estate. That is why thorough and detailed research is necessary if you want to mitigate most of the risk. When you compare the two types of investments, property development projects require more people and have more factors that affect the project’s progress, increasing the likelihood of delays or other issues. That makes property development a slightly riskier path to take.
- Should there be room for both in your investment portfolio?
This depends on your capacity for such things. Every project you take on will require your time, energy and focus, but it can be worth it in the end. Suppose you are willing to expend the necessary effort. In that case, a diversified real estate investment portfolio can hedge your net worth against some risks associated with investing in such areas.
How to Choose the Best Investment Strategy
Choosing the right investment strategy depends upon many factors, and there are no “perfect” options. The answer to the question, “Is it better to invest or develop property?” depends entirely on what you want to accomplish. How do you determine this?
- Assess your goals
What is your plan for the future? Are you looking to increase your profits in the short term for a significant financial move shortly? Do you want to grow your net worth and wealth with as little risk as possible, or are you willing to risk more to gain more? Clearly defined goals will help you decide what course of action to take.
- Review your financial ability to pursue those goals
Is your preferred investment option out of your reach financially? Once your dreams are laid out, find the best choice for your current financial situation. Should you invest in a REIT? Is developing a property in your economic purview, or is buying an investment property the right choice?
- Speak to a successful real estate investor
Mentorship is of immense value, mainly when investing in real estate. If you can, talk to and ask for advice from those who have been successful with property development projects and investment properties.
What Are Real Estate Investment Trusts (REITs)?
Real estate investment trusts are a unique and exciting way to invest in real estate today. They are easy to understand, and as a property investor, they can provide an avenue to invest in real estate without the customarily associated liquidity issues.
Real estate investment trusts allow you to invest in income-generating real estate collectively, like a public stock. Revenues from these assets are distributed regularly to investors, like a dividend. From an investment perspective, REITs provide the benefits of a store, like liquidity, with the stability and tax benefits of real estate investments.
To Develop or to Invest in Property?
Developing real estate and investing in real estate are both great investment choices. Which option depends on your network, capital access, and risk appetite? Consult your investment goals, assess your ability to pursue these options and do your research before deciding on your final course of action.