say when the stock market becomes less and less attractive,
people go after risk-free investments, and the real estate
market leaps forward.
Real estate refers to land and all immovable property attached
to it as well as certain rights attached to the property.
Real estate is a major class of assets. There are other
major classes of assetsbonds, stocks, commodities
and cash. A diversified investment portfolio will include
most of these classes.
Real estate investment goes beyond owning your primary residence.
It is using cash to buy a property that will yield an income
in some form or fashion at some point in time. The gain
or benefit comes either as a stream of income, such as from
rentals, or via capital gain, based on increasing value
of the property with time.
The one major advantage of real estate as an asset class
is the relative ease with which you can determine its valuesimply
because it is tangible or real property, hence
the term: real estate.
Compared to the asset classes on the stock market, where
there is only paper representation of the value, with real,
tangible property, the investor can see with his own eyes
and compare neighbouring property with his own.
The potential risks involved in such an investment are also
mostly visible, and this makes it less risky than other
asset classes. In addition is it easy to determine the associated
costs involved in purchasing a property, as well as the
anticipated costs of maintenance and upgrade. The effects
are also visible.
One may ask the question: if property as an asset class
is such a good investment why does anyone sell? In truth,
investments typically are considered good, if they can be
turned into cash within a reasonable time.
Recall that we noted: the primary residence, the place where
you live, is not expected to be sold, so we exclude it from
the class of assets.
However, people do sell the primary residence, if it can
return capital gain. Some people build large houses, with
the intention of selling it when the children move away.
Some people recognise that their area has grown into a high-end
real estate area, and sell to capitalise on unanticipated
These are more often mild forms of real estate investing.
But in terms of an investment portfolio, you begin to dabble
when you can buy a second or third property, purely for
Some people buy up property to give to their heirs. This
is genuine investment, since the buyers seek to capitalise
on time, and expected appreciation of such property. They
hardly see themselves as real estate investors however.
We often hear how much money we can make in the stock market,
but seldom does anyone try to sell us the value of return
on the real estate market. Why? Real estate requires a long
term vision, time and patience.
It requires dealing with tenants, renovations, utility bills.
These can be troublesome, since good tenants are hard to
come by, and people dont care for other peoples property
as well as they would their own. In addition people do not
conserve electricity or water, unless they pay directly
The benefits, however, are many: cash flow, property appreciation,
leverage and amortisation, as well as certain tax advantages.
Some people have grown financially independent on real estate
alone. It involves access information. You have to know
where things are happening and why, and you have to know
it before others do.
-continues next week