Creating wealth through real estate investment
Investing in real estate remains one of the best ways to accumulate wealth, both in terms of appreciation in market value as well as generating a reliable monthly cash flow which can largely be attributed to two key factors.
This is according to Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty, who says that not only is property one of life’s essential commodities, but unlike other popular investment vehicles such stocks, bonds and mutual funds which exist only on a financial statement, real estate is a tangible asset class.
“Even if the stock market were to suffer a global collapse and the current market value of all stocks dropped to zero, with real estate you will still have something of value on your hands,
“Real estate also offers a wide diversity of available choices, which makes it an investment option for investors on all rungs of the financial ladder, not only high net worth individuals.
“And it’s relatively easy to get started because you don’t have to do it all at once; you can slowly build up a substantial portfolio or establish a healthy passive income over time.”
The main benefits of real estate investment:
- Cash flow: Unlike many other investments, real estate has the ability to generate stable cash flow, either in the form of profit once you’ve paid off your mortgage or as rental income, whether from an income-producing flatlet on your primary residence or from separate properties.
- Ability to appreciate: Generally, the value of properties appreciates with time which means that the longer you’ve owned a property, the more it will be worth, making it the ideal nest egg.
- Tax concessions: As a real estate operator, you’re able to deduct items such as interest and maintenance over time as business write-offs.
- It gives you leverage: By consistently servicing the mortgage, you have the opportunity to tap the equity that you have built up and if you own multiple properties or buildings with several units under one roof, you have the option to cash out at any time.
- Loan pay-down: When you buy a property with a mortgage in order to rent it out, your tenant is paying at least part of the monthly bond repayment, which means your property is essentially a savings account which grows automatically without you investing very much more – if anything at all.
- Hedge against inflation: When inflation increases, so does your rental income and often your property value as well. In other words, when the cost of living goes up, so does your cash flow.
The most common investment methods, some of which are best for passive income, others for long-term growth or a hedge against inflation:
- Long-term home ownership: The simplest way to invest and secure your retirement nest egg is to buy the right property in the right area as your primary residence and stay put, adding value as and when you can spare the cash.
- Live in, rent out: If you can’t afford the mortgage in the area or on the type of home you want, a good option is to buy a property that offers dual living so that the rental income can supplement the bond repayment on a home that will yield higher returns when the time comes to sell without too much sacrifice in the meantime.
- Rental properties: Savvy investors who multiply their wealth this way, buy properties that will not only appreciate significantly over time, but will also generate enough cash flow to cover the mortgage and possibly also the related expenses.
- House flipping: This is essentially the process of buying a property, fixing it up and forcing appreciation through renovations and upgrades, and then selling it for more than your purchase price.
- Fractional real estate: Exactly the same as any other income-producing real estate, except with this type of investment, you are buying a portion or percentage of a property with the cost of the property as well as the profits being split between multiple shareholders.
- Buy into a REIT: This allows you to purchase shares in a company that operates or finances income-producing real estate and pays you in dividends. You can even spread your investments out across several companies with REIT ETFs.
It’s also an easy way to get started in real estate without a large cash investment.
- Invest in a private equity fund: This entails trading your capital for an equity position in a company formed to develop, operate, or manage a single-asset property or portfolio of commercial properties, including projects across the development lifecycle.
Although it’s certainly easier to invest more and to access better-quality investments when you have a bigger budget to spend, real estate offers everyone the opportunity to get started relatively easily and to build up substantial passive income slowly and progressively,” concludes Geffen. DM/ML
Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty