How To Incorporate Real Estate In Your Investment Portfolio
Trying to wade through to amount of different investment products can be a daunting task. But with a little knowledge you can choose the one that's best for you. And historically real estate has been the best and safest performer.
The number and types of investment opportunities that are accessible today is staggering and to the average investor,
attempting to comprehend which one is right for you can be a daunting task. There are varying risks and rewards that go along with each one. One can feel that in order to comprehend each type requires a university degree, but you can improve your chances of success by doing your research.
Most of us have all heard about the importance of keeping a diversified portfolio. The theory being to have different types of investments better safeguards your money and maximizes your profits. It is a multi-legged approach for investing. Savings, stocks, and bonds are considered to be just one type of investment.
Commodities make up the next type of investment product. Some examples of these are items such as gold, silver and oil. They can result in substantial profits but at the cost of very high risk. Usually commodities are left to the experienced investors who know how to evaluate the market.
Historically real estate has been a solid investment however due to its cost it is not available to everyone in traditional ways. To use the Toronto residential real estate market as an example the average value of a property is over $300,000 with commercial properties being even more. This is where Real Estate Investment Certificates, otherwise known as REITs come into the picture.
These entities have the job of purchasing interests in or properties like malls, motels and hotels, office space or mortgages. REITs themselves come in various forms to suit your investment style. Equity REITs are investments in property. The rents that are charged makes then money. To use Toronto as an example again you may have shopping areas with a Wal-mart, Home Depot, Payless shoes etc. which are all leasing space from the property owners. All together these Toronto properties are all making money from rents for the REIT and its investors. The second type of REIT comprises of the lending of mortgage money generally to developers or property owners. If you can't decide which one you prefer you can choose to get a hybrid REIT which is a combination of the two.
One risky kindof real estate invest is known as an option. This is simply a purchaser is making what's known as an "option for consideration". The option entails an offer to buy real estate if certain conditions are fulfilled such as financing or inspections. A relatively small amount of money is put up as good faith and the property is taken off of the market during this time. The risk is that if the conditions cannot be fulfilled the potential purchaser may loose their deposit. The reward is that the purchaser can attempt to sell their option to a third party and turn a tidy profit in a very short time. To a purchaser needs to research the market thoroughly.
It can be confusing at times but the more you know the better off you will be. Long term investing is the key and real estate has been shown to be a good option for investors and even with the many As real estate has proven in the past long term investing is the goal and when compared to other forms of investment products, real estate carries the least amount of risk. This makes it is an important part of any portfolio.
