Real Estate as an Investment

A Guide to Using Real Estate as a Financial Investment

As a local business, we have a responsibility to the communities in which we operate. We also know that your home and where you live is one of the most important aspects of your life. That is why looking after the communities and environments in The Bahamas is an integral part of our company ethos.

Types of Real Estate Investments

Commercial- Commercial rental properties are office buildings and skyscrapers. They often have multiyear leases with their tenants that leads to long-term stable cash flow.

Industrial- Warehouses, distribution centers, storage units, car washes, and other special-purpose retail spaces are all considered industrial real estate investments. These facilities can have revenue streams from service and fees such as a coin-operated laundromat.

Mixed-Use- As the name suggests, mixed-use properties have more than one type of tenant. An example of a mixed-use facility would be a property that has residential apartments upstairs and retail stores on the ground level. The diversification of investments has an additional benefit of controlling risk.

Retail- Retail storefronts, shopping centers, and outlet malls are examples of real estate possibilities involving retail. At times, the landlord gets a certain percentage of the tenant's profits, and that fact can increase personal profits with little effort as a real estate investor.

Residential- Apartment buildings, houses, townhouses, and vacation homes are examples of residential real estate. The tenants pay rent either directly to the owner or through the property management that was hired to look after property homes. Leases are typically for 12 months but can vary depending on both involved parties.

Real Estate Investment Trusts (REITs)- Not everyone wishes to take on the challenges of being a landlord. REITs are a hands-off approach to running profit-yielding properties, and they work like stocks that pay dividends. To avoid paying a corporate tax and maintain their status, any REIT has to distribute 90% of profits to stockholders.

Real Estate Trading (Flipping Homes)- Purchasing properties cheaply then fixing them up and selling them for a hefty profit has become a more popular real estate investment since the house flipping shows hit the airwaves. Flipping houses can be done in short periods and then resold at a profit. The short turnaround time means that more houses can be flipped and sold per year increasing potential returns on investments.

Benefits of Having Real Estate as Financial Investments

Property Value Increases- Having the property value increase is a long-term return on investment. The real estate market is slowly regaining ground, and prices have been steadily rising. The longer an investor holds onto a property the more the value will rise leading to the investor having the option to sell for a substantial profit.

Potential for Higher Income- Real estate can make money for investors by bringing in rental income. The cost of the rent can add up to the cost of the monthly mortgage and bring in an additional profit. The income stream from leases can be used to pay down personal debt, increase liquid savings, continue financial investments, and pay for large expenses. The lease profits are generally higher than stock dividend payouts.

Safer Investment- The stock market can be a risky investment which is why a diverse portfolio is important. Real estate is a safer investment because there are no red and green days. Each day, properties and their land begin to increase slowly in value thanks to an improving real estate market. Buyers can pay using the leverage that allows them to pay a portion off initially and pay the rest of the balance off on a payment plan at a lower APR.

Equity is Built with Each Payment- As the mortgage loan for each real estate investment property is paid, equity is built up over time. Home equity loans can be taken out on investment properties if needed. Equity can be used to invest in additional properties and thus increasing immediate cash flow.

Protection Against Inflation- When the value of a dollar dips, the value and return on most financial investments will be negatively impacted, but real estate is the exception. Real estate prices tend to go up, and multitenant units especially can increase in value when inflation happens. Other investments could take a financial blow because of inflation, but real estate offers a safety net against inflation losses.

Real Estate Brings in Cash Flow During Retirement- Seniors living on social security and a pension can purchase investment properties and lease them out for liquid cash flow to provide regular household income. On the alternative side, people can use the profits from real estate investment to save for their future retirement, and they can leave the real estate properties and holdings for future generations to have financial security.

Real Estate Has a Meaningful Value- The land and the property both have a value that doesn't change daily like the stock market. In the future, the property and the land can be sold together or separately, and the land can end up being worth more than the property.

Tax Benefits- Tax season as a real estate investor is a positive experience with the U.S. tax code allowing for unlimited mortgage interest deductions and depreciation accelerations. The 1031 provision takes place during the sale thanks to the IRS. That provision is best explained by a tax advisor, but it allows taxable gains to be deferred to the future and exchanges a like-kind instrument.

Community Improvement- Neighborhoods are empowered and updated when eyesore properties are improved. This helps increase local property values, enrich the area, give the neighborhood a sense of pride, and improve the visual appeal of the area. If you make an effort to improve a specific area, you or your company might receive positive publicity which is helpful for a business or nonprofit.

Good First Entrepreneurial Endeavor- People that are looking to become entrepreneurs but do not have any prior experience can ease into the role and gain expertise as real estate investors. With real estate investments, there is a significantly lower risk than opening a new personal business. New entrepreneurs or real estate investors should hold on to their property for a while to let the value appreciate because the time spent as a personal asset increases the property's value.

Flexibility- There are many paths an investor can take in real estate which depend on experience levels and interest in certain aspects. Once a regular cash flow has been initiated the investor can decide to use the proceeds as personal income, use it to make more investments, or save it. Flexible schedules for real estate investors are an additional perk that most enjoy.

You Offer People a Home- Those that choose the residential real estate route have an additional benefit because they are providing a clean, safe place for families to live. Not everyone can afford to buy a house, but quality residential real estate with good management improves the lives of many by providing a place to call home.

Common Misconceptions about Using Real Estate as Financial Investments

Misconception: Renovating Houses then Quick Flipping Them Makes the Most Profit

Truth: The cost of renovations and short hold time of the property before selling cuts profit margins significantly making this misconception confirmed false. Unexpected expenses and repairs often occur making investors sink too much into each property making them have to sell it higher to make a profit.

Misconception: You Have to be Rich to be a Real Estate Investor

Truth: Liquid capital is always the easiest to work with, but anyone can become a real estate investor. Investors can typically begin investing in property with as little as $10K.

Misconception: Real Estate Takes Too Much Time

Truth: Investors need not worry about the daily needs of running a property. They hire property management companies to take care of the property, work with potential tenants, handle tenant complaints and repair requests, and accept the rents. The real estate investor can also decide whether to hire a real estate office to find suitable leases or to let the property management company handle leasing as well. The investor just handles the finances with little or no interaction.

There are many reasons to choose real estate as a financial investment. They are a safer option than the stock market, offer cash flow, diversify assets, and have money-saving tax breaks. Many misconceptions have skewed people's opinion of the real estate market. For example, there is more to real estate investment than renovating and flipping the house on a short sale. Great gains can be made by purchasing property, leasing it out, and selling in the future when the market is ripe. Another misconception is that only rich people can take part in this market. That is incorrect; people can get into real estate investments with even just $10K in savings. Real estate investments are beneficial in the short term as an asset protected from inflation and a long-term investment strategy.