There’s an age-old debate in the real estate market as to whether primary residences should be viewed as investments or simply as a place to live. While this debate is something that every homeowner should carefully consider, it is clear that there are reasons for buying a nice home, no matter the market conditions, other than simply to maximize one’s wealth. After all, everyone needs a roof over their head.
The same cannot be said, however, for professional real estate investors or anyone who is investing in a property that has the main purpose of income generation. These investors need to be much more careful about things like market timing. Real estate cycles can often last even longer than business cycles, meaning that an investor that buys into an overheated market could be waiting decades to realize any returns at all.
Unfortunately, there is currently ample evidence that real estate markets from coast to coast are overbought. While there still may be opportunities for solid long-term returns that can be located by savvy investors, the current trends in real estate prices indicate that there will be a reversion to historic averages in the near-term future. Buying into a market at a peak like the one we’re very likely seeing now can have disastrous consequences for the long-term performance of any real estate portfolio.
One of the key indicators that the real estate market is well above sustainable price levels is the number of hours that the average wage earner needs to work in order to buy the median home. In some cities, like Los Angeles and San Francisco, the average wage earner would need to work the majority of their waking hours in order to afford minimally decent housing. Contrast that with the norms of the 1960s when many American families only needed a single wage earner to work for 10 hours per week in order to afford the median home.
Another key factor that may bode poorly for the performance of real estate prices over the next five years is the almost certainty that interest rates will soon begin rising. The real estate market is exquisitely sensitive to interest rates, and worst-case-scenario interest hikes could put a big dent in the price gains that housing has seen nationwide since the financial crisis of 2008.
Real estate investing offers a great way to grow your savings and build wealth. While many people want to get involved in this possibly lucrative venture, the responsibilities that go along with owning property may be keeping them from acting on their interests. However, there are many options for investing in real estate that don’t include becoming a landlord.
Buy Real Estate ETFs
As mentioned in a previous post, an ETF is an exchange-traded fund that’s comparable to mutual funds in that they consist of stocks relating to a particular theme. However, unlike mutual funds, an ETF is traded publicly on the exchange. Vanguard’s VNQ is one such real estate themed ETF. This fund invests in REITs, or real estate investment trusts, which focus on stocks concerning commercial real estate, such as office buildings, hotels, and similar buildings.
Real Estate Mutual Funds
A more traditional route may be to invest in real estate mutual funds, which provide the possibility of growth without the high risk. DFREX is a favorite in this category, partly because it offers lower fees than other funds. Additionally, DFREX consistently performs well. The fund shows great promise for future gains, because it’s supported by decades of professionally driven research. Nobel Prize winners help to develop the fund’s strategy.
Invest Directly in REITs
This is another option for investing in real estate without taking actual ownership of any property. REITs are like funds in that they stick to a general theme, such as commercial real estate, so you can opt for whichever category appeals to you the most. If you choose to explore this option, do so with caution. The U.S. Securities and Exchange Commission (SEC) recently issued warnings against REITs that aren’t publicly traded. The agency highlighted a lack of liquidity, lack of value transparency, and high fees as factors that create unnecessarily high risk.
Invest with Commercial Real Estate Developers
These can be hotel corporations, resort or timeshare operators, or commercial contractors. By buying stock in these types of organizations, you can benefit from their growth without having the responsibility of buying property yourself. You will have to thoroughly research each company to ensure you’re making a sound investment, but, otherwise, this can be a promising alternative.
These are just a few ways you can invest in real estate without getting your hands dirty. Most people live lives that are too busy to add maintaining a rental property to their schedule, so these options let you reap the benefits of real estate investing more freely. As your money grows, you may find more opportunities for investing in real estate centric funds, stocks, and companies.
There are two ways investors make money in real estate: renting and selling for profit. Of course, the savvy investor can use both methods, even on the same property. Here we will go over some details of each method.
It should be emphasized that whether renting out a property or selling for raw profit, the importance of location can’t be overemphasized. The fact is that nearly any model of residential or commercial building can be replicated in many locations. However, the local amenities, culture, atmosphere, weather, or historical value cannot be duplicated. It is such factors that give rise to widely different prices and rents for otherwise identical structures.
Cash Flow: Rent
When renting, the first priority is attracting and retaining tenants. Generally, home-like rental properties or long-term commercial leases are a better option than short-term rentals that, admittedly, fetch a comparatively higher monthly rental. This is because vacancies take their toll and are bad for cash flow. Make sure to specify clear lines of responsibilities for tenants and the property owner. Maintenance, repairs, utilities and tax responsibilities accrue as costs to the property owner, so make sure that rental cash flow at least matches maintenance and other necessary expenditures.
Fix and Flip
Buying low and selling high is the holy script of investing. When buying real estate, beware that the purchase price essentially traps liquidity upon sale completion and for as long as it takes to renovate and resell the house. Also consider the opportunity cost of other income-producing activities, including renting, that the property owner could be doing. Such opportunity costs can add up, but if the buyer were to completely outsource the “fix” to others, the added cost would reduce or even eliminate the profit margin upon resale.
Note that both methods of making money from real estate entail unexpected costs along the way. Vacancies, irresponsible and toxic tenants, as well as competing units can take the steam out of anticipated cash flow from rental properties. Costly repairs, illiquid funds, and all-in marketing and resale costs can deflate profit margin from fix-and-flip properties. Consider the time and expertise required for each investment method and pick whatever works best. Real estate can be lucrative, but is not risk-free.
Various cultures have different leadership styles. Richard D. Lewis, a British linguist, charted the differences in his book “When Cultures Collide.” Besides he teaches these acumens in seminars.
Spanning from ringi-sho consensus in Japan to structured individualism in the United States of America, the charts look as if intuitively correct, if not separately accurate across a given nation.
Lewis argues that even though the countries may be facing rapid economic and political transformations, there exist some patterns which won’t change anytime soon. They have deeply rooted beliefs and attitudes which make them resist sudden changes in values when pressured to do so.
British managers, for instance, are diplomatic, helpful, casual and willing to compromise, although they can be ruthless when provoked. Regrettably, their strict adherence and conformity to tradition can lead to an inability to understand differing values in others.
On the hand, American managers are aggressive, assertive, goal oriented, optimistic, ready to change, vigorous and confident. They value working together as a team and enhancing corporate spirit. Unfortunately, they value individualism and promoting personal career.
With an incredible grasp of the various issues affecting their company, French managers are more autocratic as well as paternalistic. However, they quickly dismiss opinions of seasoned technical staff and middle managers.
A decentralized and democratic system of management among the Swedish people is incredible. The rationale enhances motivation and productivity among employees. Even so, decisions get delayed sometimes.
Managers in Germany strife to form a seamless system. They have a well-structured chain of command based on every departmental unit. Instructions, as well as information, are passed from the top down to the bottom. The drawback is that they considerably rely on consensus.
In the Netherlands, success is measured by the achievement, merit, and competence. Even though managers are decisive and dynamic, a consensus is compulsory since various players must be consulted before making any decision.
Traditional Indian companies practice nepotism. For example, members of the family hold critical positions excluding other people who may have the required skills and talent. Besides, policies get dictated by trade organizations such as jewelers, fruit merchants among others. These groups work in close unison and support one another during stressful moments.
China managers value consensus. The state-controlled companies allow leadership groups to formulate policies, while capitalist-style corporations select leaders with the necessary competence and reputation.
Throughout history, our culture and many industries have been shaped by those who pioneered new ideas. These entrepreneurs have changed the industries of technology, finance, and much more. Often a rags-to-riches story, these innovators have led the way in their field, making everyday life that much easier for most of the world. From the founders of online search engines to talk-show hosts, entrepreneurs of all fields have impacted our world in a way that will forever change it.
Though her success began in the late 90s, Ms. Winfrey has been a household name throughout the first two decades of the 21st century. Growing up in extreme poverty, Oprah faced many challenges due to her demographic. As she broke through at the local level of media, she was quickly notices by television and radio executive. Finally getting her own television show which ran for over 25 years, Oprah also became a leader in the media industry as a whole. Starting her own production company, Harpo Studios, she laid the foundation that was bound for success. Now as a owner of Weight Watchers, her own television network, a line of health foods, and a world-renowned book club, her legacy is solidified as an influencer for women around the world.
Not a day goes by where millions of people around the world take care of their shopping needs on Amazon.com. It is crazy to think that founder of the online site, simply wanted to provide readers a place to order books without heading into the bookstore. Now, as the wealthiest man in the world, Amazon founder and CEO, Jeff Bezos is living the dream. What started out as a business idea that he wrote during a cross country trip, turned into one of the most visited websites in all of the world. Now selling everything from groceries to appliances, Amazon is a site that will likely not diminish anytime soon.
It is hard to make a list of successful entrepreneurs without mentioning the founder of Apple. Though he sadly was taken from the world before seeing the true impact that his work has made, Jobs changed the technology game for likely the rest of our time on earth. His innovation of all Apple products has allowed people to do their jobs, live, and communicate in ways that were never imagined before. His forward-thinking is what allowed him to be so successful and his humble nature is what makes him someone who aspiring leaders should look up to.