Joanna James
Investing in real estate is unlike buying a vehicle. Many factors have to be taken into account if you are to avoid a misstep. To avoid a financial disaster, pay close attention to these 5 methods.
The concept of the rental property goes as far back as land ownership. In this scenario, an investor would buy the property and rent it out to a third party in the way of tenancy. Though the owner has to take on the responsibility of paying off the mortgage, he or she is at liberty to charge the tenant enough to cover the mortgage and taxes – owner may also have some additional earnings if it is calculated into the monthly rent. After the mortgage is paid off, most of the rent income becomes profit which leads the way to financial freedom.
You could think of this as a mutual fund for rental properties. If you want to become an unencumbered investor without the trouble of being a landlord, this option might speak to you. An investment group – like many property developers in Sri Lanka – would build a set of apartments and you can buy them through the company. An investor can own more than one unit, and they will all be maintained by the investment group. In return for taking care of your property, they will charge some percentage off the rent.
REITs are created when a corporation decides to buy property using the investors' funds – these are bought and sold on major exchanges. The corporation, by no rule, is allowed to keep all the profits – if it is to remain a REIT, 90% of the taxable profit has to be paid out in the form of dividends. By scooping out 90% of the profit as dividends, a REIT enjoys not having to pay income tax.
Very unlike buying and renting out properties, real estate trading takes on a completely different approach from that of REITs. In the concept of real estate trading, the investor would buy the property and retain it for a short period of time until there are favourable changes in the price of the property. Some investors call it flipping properties as this notion of investment involves buying a property that is undervalued.
If you don't want to take on the risk of making a huge investment and having to deal with all the regularities yourself, you can invest in companies that trade in real estate – one such company would be John Keells Properties. There are home builders, construction companies, hotels and more. You have the option of buying stock in publicly traded companies, and the impact of the market changes will be diffused. Highlights of investing in these companies include: investing in companies that are already involved in real estate, being able to sell at any time, high risk and high return.
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