WHY REAL ESTATE HOUSING MARKET AND WHAT BRINGS US TO THIS POINT?
REAL ESTATE : coming from a middle-class or backward-class background the only thing we hear is the acquisition of land or having some inheritance, any ordinary person growing up from a middle-class background can relate to it – the target to buying land is the only thing that sticks to an individual’s life and that is what most of them had heard of from their ever-growing stage.
there is definitely an intuitive emotion enrolled in every individual’s life that having your own land or house makes you feel safer and better on contrast to this context, every other person wants to acquire at least a piece of land where they can build their house or buy a ready-made house, either way, any person needs its own residence ( appropriately in their own name).
this is the force that drives every single person and it unnaturally becomes a dream for some of them, by this, some do buy for themselves with no pressure but the majority of the population buys a home or land and gets a debt burden, due to which they pay heavy penalty.
to overcome this burden one must have some financial Knowledge, like academic knowledge financial knowledge is also a must requirement in today’s information age. in this blog, we will discuss the fundamentals of real estate, its volatility, mortgage rates, and the difference between using a house as an asset and a liability.
WHAT IS REAL ESTATE?
the word “REAL” in real estate comes from the Spanish word “royal”. it does not mean physical or tangible here ( unlike stocks, bonds other assets) that’s because the property has always belonged to the royals, comparing it today it belongs to the government. you might have a doubt about this statement, well anyone can- then just in order to prove this doubt try an experiment ” just stop paying your property taxes” and you will find out who really owns this property- jokes apart, whether you hold a mortgage or not doesn’t matter.
the fact is you may control the real estate but the government always owns it, also it depends upon your cash flow system that the house you bought is an asset or liability, there is a very famous book on the topic of assets and liability and the name of the book is RICH DAD POOR DAD – by Robert .T. Kiyosaki, if you haven’t gone through it then please have a go through it, the most basic financial book ever been published.
SOME GENERAL QUESTIONS RELATED TO REAL ESTATE-
the only possible way through which we can clear our doubts about real estate is just by having simple questions, questions that generally arouse in every normal people’s mind-
- HOW TO KNOW THAT IT IS THE RIGHT TIME FOR SOMEONE OR A FAMILY TO INVEST IN A HOUSE ( REAL ESTATE)? TO LIVE IN?
well, this is probably the most queried statement and mostly the most confusing statement – although it is a very personal decision, this type of decision-making position comes at the point of – getting married, starting a family, change in jobs, having more kids, parents moving in, kids moving out, existing infrastructure is unsustainable, etc. all these are the housing requirement for the people.
now the next question that generally occurs from the mindset of a beginner is-
- WHERE SHOULD I START INVESTING WHEN IT COMES TO REAL ESTATE? ( most widely asked in India) ?
well from a general point of view, a beginner in India should either make an investment in the plotted development projects during the initial launch or in an apartment under construction by a reputed builder. In the case of long-term investment, one can think of investing in pieces of land in growing areas of the city they live in.
as an investment in real estate can be done for both the cases of capital appreciation or cash flow- where cash flow is the most important part as one requires regular returns to meet various financial and personal commitments. At the same time, one should look for adequate capital appreciation by investing in potential projects in a limited way.
- WHERE IS THE NEXT BIG OPPORTUNITY FOR RETAIL INVESTORS IN REAL ESTATE?
Although there are multiple segments and positions to invest in real estates, such as the-
- REITs ( REAL ESTATE INVESTMENT TRUSTS)
- CROWD-FUNDED FACTIONAL OWNERSHIPS
- INDEPENDENT SMALL OFFICES
- COWORKING SPACES
- GRADE A OFFICES
- INFRASTRUCTURE INVESTMENT TRUSTS (InvITs)
REIT ( REAL ESTATE INVESTMENT TRUSTS)-
what is a real estate investment trust- A REIT is a company that owns operates or finances income-generating real estate. modeled after mutual funds, REITs pool the capital of numerous investors. this makes it possible for individual investors to earn dividends from real estate investments without having to buy, and manage to finance any properties themselves.
real estate investment trusts are the easiest way for people to get into commercial real estate and enjoy 6-7% rental returns from a portfolio of rent-yielding commercial real estate owned by a big company. you can invest in just 1 share of a REIT ON NSE or BSE just the way you buy equity shares as a company.
so, if you are looking to diversify your asset portfolio, you could start off by investing a certain lumpsum amount in a REIT of your choice and enjoy steady rental income by way of dividends. ( IF YOU WANT TO KNOW MORE ABOUT REMAINING TOPICS ON REAL ESTATE INVESTMENT)
REAL ESTATE CAN BE SUBDIVIDED INTO :
- COMMERCIAL OFFICE
- COMMERCIAL RETAIL
- RAW LAND
- RAW LAND ON THE CURB
- AND CONTINUOUSLY GOING ON…
UNDERSTANDING THE CONCEPT OF DEBT AND EQUITY-
basically understanding the difference between debt and equity, gives us the exact representation of how to function in the market- when we see EQUITY we understand that its a risky, long-term, growth-oriented investment that can show high volatility performance, depending on how the underlying business is performing, there is no assurance of a return to the equity investor since the value of the investment is bound to fluctuate.
DEBT– represents a relatively lower risk, steady income-oriented investment. now with the help of a small interview between bankers and Robert T. Kiyosaki ( the author of rich dad poor dad), we would like to explain the general difference between them.
Robert.T.Kiyosaki started the conversation, he stated – today morning I was going through a newspaper and I saw a couple’s 401(k) retirement plan had done so well that the bold headline of the article says that the couple decided to retire early, since past ten years this is a booming market and they had decided to retire six years early than planned. HE WAS FIFTY- NINE YEARS OLD AND SHE WAS FIFTY-SIX YEARS OLD.
The article further quoted them saying ” our mutual funds have done so well that we realized one day we were millionaires. instead of working for six more years, we pulled it back.
eXPLAINED: Robert elaborates further that due to your mortgage bankers it was possible for me to retire early- not because of my stock broker or my real estate broker, he further states that I was able to retire early because I used debt to fund my retirement, and this couple in the newspaper the people with the 401(k) used equity to fund their retirement .that is why they took longer to retire.
QUERY: a person from the banker asked ” so you’re saying that the guy in the newspaper used his money to retire and you used our money to retire?”
EXPLAINED: “that is correct” – further Robert illustrates that I used my money to get deeper into debt, and the guy in the newspaper was trying to get out of debt. moreover, it took him longer to retire since he had used his money ( his own equity). he also further states that to use debt financial knowledge is required without it using debt is just like heading a gun fully loaded to any random untrained person ( which makes everyone in danger, including himself).
“NVESTING IS A SUBJECT YOU CAN LEARN THE BASICS OF FOR THE REST OF YOUR LIFE” – ITs STATED THAT, IT MAY SOUND COMPLEX AT THE START. AND THEN IT GETS SIMPLE. THE SIMPLER YOU CAN MAKE THE SUBJECT OR MORE BASICS YOU LEARN, THE RICHER YOU BECOME WHILE REDUCING RISK. BUT THE CHALLENGE FOR MOST PEOPLE IS TO INVEST THE TIME”~ROBERT.T.KIYOSAKI
WHY MORTGAGE BANKS? WHY NOT INVESTMENT BANKS?
now coming on to the general point of view, regarding your choice of asset class and how to manage the asset class – assuming you want to invest in stocks, bonds, or any other paper assets then where will you go to fund your investment – definitely not to any normal bank, it has to be investment bank( they hold investment transaction for corporates ).
let’s assume the next scenario- where you want to buy real- estate now where will you go definitely to a mortgage bank( they provide a loan for real estate, which you need to pay back with interest).
bankers are classified into two distinct categories basically the mortgage bankers and investment bankers, now it’s fundamentally clear the difference between mortgage and investment bank, is simply – mortgage banks lend money for or against real estate and focus on the cash flow it also has some limited taxation, whereas an investment banker lends money to corporates for stock, mutual fund and awaits for capital appreciation there exits the (LTCG & STCG) taxes.
now coming to the end, if you liked this blog which is a very basic understanding of real estate, and want more please comment below and share it with your friends.- team Bridgenile- and if any further question remains on a basic level then send them back to us at info@Bridgenile.com