on Jul 21st, 2008Real Estate Investment Beyond Posession of the Property
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Whether directly or indirectly, real estate investors purchase the rights to a stream of future income that will be generated from real estate properties (land and buildings). The income might come from rental income, from using the property as loan collateral, from cash savings by offsetting or deferring otherwise taxable income (with tax deductible losses from the real estate property), or from net profits upon resale of the particular piece of property.
The price an investor is prepared to pay for a defined property interest depends in part upon the amount and timing of this future expected income; how much and when the income will be received. The price also depends upon the degree of certainty of the expected income and the real estate investor’s tolerance for risk. Lastly, the price is dependent on the attractiveness of any alternative investment opportunities.
Practically any investment goal can be met with a sound real estate investment strategy. And the positions investors take don’t have to be limited to taking physical possession of the property itself. Speculators can (and do) deal in real estate futures (the buying and selling of purchase options). Developers can (and do) reduce risk exposure by using standby loan commitments or by taking a position in interest rate futures. And investors can buy fixed income assets such as mortgage loans or net leased properties.
Real estate may be at its most attractive when it is approached as a potential business opportunity - as opposed to a simple investment.
When it comes to real estate investment, the possibilities are constrained only by the limits of an investor’s ability to conceive of the alternatives.
