Benefits of Investing in Real Estate - Mateen Pekan

What Is Real Estate?

Real Estate is "property comprising of land and the buildings on it, along natural resources. For example, land including uncultivated flora and fauna, farmed crops and livestock, water & any additional mineral deposits."

Basic Categories of Real Estate:

1) Residential

2) Commercial

3) Industrial

Benefits of Residential Real Estate and Home Ownership

Homeownership, also known as owner occupancy. Mortgages can charge either fixed-rate or variable-rate interest. Fixed-rate mortgages generally have higher interest rates than variable-rate mortgages, which can make them more expensive in the short run. Fixed-rate loans cost more in the short term because they are protected from future interest rate increases.

Benefits of Commercial Real Estate

Commercial real estate is used for commerce and includes anything from strip malls and free-standing restaurants to office buildings and skyscrapers. It is often distinguished from industrial real estate, which is practical space used in the manufacturing of products.

Buying or leasing real estate for commercial purposes is very different from buying a home or even buying residential real estate. Commercial leases are generally longer than residential leases. Commercial real estate returns are based on their profitability per square foot, unlike structures intended to be private residences.

Investing in Real Estate

One can invest in real estate directly by buying actual properties or parcels of land; or indirectly, by buying shares in publicly traded real estate investment trusts (REITs) or mortgage-backed securities (MBS). Investing directly in real estate results in profits or losses.

Except for a severe national recession or depression, residential real estate values, in particular, are affected primarily by local factors. Such factors include the area's employment rate, the local economy, crime rates, and transportation facilities, quality of schools, municipal services, and property taxes.

Pros of Real Estate:

· Offers steady income

· Offers capital appreciation

· Diversifies portfolio

· Can be bought with leverage

Cons of Real Estate:

· Is usually illiquid

· Influenced by highly local factors

· Requires big initial capital outlay

· May require active management, expertise

On the one hand, residential real estate is usually less expensive and smaller than commercial real estate, and so it is more affordable for the small investor.

On the other hand, commercial real estate is often more valuable per square foot, and its leases are longer, which theoretically ensures a more predictable income stream. With greater revenue comes greater responsibility. Commercial rental real estate is more heavily regulated than residential real estate, and these regulations can differ not only from country to country and state by state but also by county and city. Even within cities, zoning regulations add a layer of unwanted complexity to commercial real estate investments.