Real estate investment has been one of the most profitable among the many types of investments. A real-estate investment is a building or property other than a family home that generates income through rent or resale. The price of the investment and the earnings are driven by supply and demand.
Kiyosaki termed real estate investment as an investment with “curb appeal.” Investors who want to see more than a print-out of their holding can drive by the property or building, vacation in it (with certain limitations), or work from it. Real estate also requires ongoing contributions of time and money. Investors must shop around for the best financing or refinancing terms, buy liability and property insurance, set up entities for tax and management purposes, install security systems and maintain buildings to code, screen and evict tenants, and possibly hire professional personnel to assume management responsibilities.
As with other securities, often the best time to buy real estate is when the seller doesn’t want it—in other words, when the market is depressed or a bank is unloading property in foreclosure. Investors can scout deals themselves, but most rely on the services of a top-notch realtor or broker. As a building’s income-and-expense statement may not always be accurate, an investor should be able to evaluate it cautiously, using knowledge of the current market to determine if the cash flow is realistic.
According to Robert Kiyosaki, there are three types of real estate investment: buy a property, buy shares in a real estate investment trust, or invest in a mutual fund focused on the real estate sector.
PROPERTY: A real estate investor can choose from four different types of property: residential (single- and multi-family homes, condominiums, townhouses, and apartment buildings), industrial (manufacturing plants, storage units, warehouses, industrial parks, and research-and-development parks), commercial (hotels, offices, and retail- or wholesale-sales space), and undeveloped land. When choosing one of these investment vehicles, the real estate investor should be knowledgeable about the local real-estate market, general economic forecasts, and tax realities.
For example, raw land might need nothing more than an improvement in grading, but it is also the most speculative investment and cannot be depreciated for tax purposes. A recession can reduce the demand for every type of property except apartments. In general, commercial property is more difficult to manage than residential, for new business tenants may require costly improvements.
If you want to invest in real estate, you need to do a careful and thorough due diligence on the property that you’re buying. I have some exposure on real estate investing through foreclosed properties through my job in an asset management company before and I shared some of these real estate investment tips.
REAL ESTATE INVESTMENT TRUSTS (REITs). REITs are business entities that invest in income-producing real estate. For a fee, the trust managers provide a broad range of services from locating and buying properties to contracting with tenants. Shares in REITs, traded on the major stock exchanges, are easy to buy and sell. They can also be purchased through tax-deferred retirement accounts. REITs are good for investors who want headache-free real estate.
However, REITs are not yet available here in the Philippines but soon, it will come. Here is a news that I’ve read stating that Senator Angara and his son proposing Senate Bills to pass an act for real estate investment trust.
REAL ESTATE MUTUAL FUNDS. These are funds that invest in different REITs, thus providing the investor with real estate diversification.
Again, real estate mutual funds are not yet available here in th Philippines since we don’t have REITs yet. We have mutual funds though that invest in bonds, stocks and treasury bills.
As an ending note, I would like to give another Rich Dad Tip from Robert Kiyosaki:
The formula for winning at real-estate investing is the same as for winning at Monopoly: Buy four green houses, then trade them for a red hotel. Beginning investors should start small while they acquire education and experience. Later, they will have the financial intelligence and assets to trade up to more lucrative investments.
Source: Robert Kiyosaki’s Coaching Program