Direct Real Estate Investments 101

Real estate investing can diversify an investor’s portfolio and provide a wealth of benefits for him or her. An asset class-like property offers a wide range of opportunities.

Our investment opportunities are diverse, can be structured in a variety of different ways, and can meet the requirements of most investors.

In order to ensure you invest in the right property opportunities for you, whether you are a new or experienced investor, there are certain decisions you need to make. Direct and indirect investments both carry risk and potential rewards, but investors should understand the differences.

What is Direct Real Estate Investing?

You invest in direct real estate by purchasing a specific property or stake in one. This includes apartments, which are residential properties, and shopping centers, which are commercial real estate investment properties.

Rent, appreciation, and profits generated from business activities dependent on real estate are ways to make money directly from investing. While direct investing can achieve profits, it requires a large capital investment and is cash-flow dependent.

To ensure profit from the development isn’t eaten up too much by interest, it relies on bank loans or mortgages that have low-interest rates.

Direct vs. Indirect Investments

When you invest directly in real estate, you own a piece of property. In equity investments, investors acquire a direct ownership stake in a shopping center, office building, or apartment community.

Moreover, capitalizing a loan with real estate as collateral involves borrowing money against the value of something such as a piece of land or a house.

An indirect property investment, on the other hand, involves investing with other professional investors and those from institutions via bonds or peer-to-peer (P2P) lending platforms. 

Investing in non-traded or publicly traded real estate investment trusts (REITs) is one of the first steps for most investors. This is an entity that owns and manages portfolios of real estate assets.

Advantages of Direct Real Estate Investing

Your decision-making power increases with direct investing. You might decide on what properties to purchase and how many to buy, as well as what rental prices to charge and what tenants to hire. Moreover, the value of the asset increases.

There is a fluctuation between the stock market and the real estate market, but the property price usually rises with time, so you may eventually be able to sell your home for more than what you paid.

The multitude of tax reliefs available for property owners is another great advantage of investing in real estate. The costs of managing and maintaining a property, for example, can be deducted. Through the deductibility of costs associated with the property’s purchase and improvement, you gradually reduce your taxable income.

Mistakes to Avoid When Investing in Direct Real Estate

Direct investing means showing up prepared to play the game when it comes to real estate. To make a successful investment, you must conduct extensive data-driven research, and you should be extremely selective when you buy.

Investors who fail to plan make the biggest mistakes and this can be avoided by doing your due diligence.

Choosing a Weak Location

Several factors drive rent demand in specific neighborhoods or submarkets within a particular city. A competitive market analysis that evaluates a rental property’s ability to meet the needs of tenants should include transportation, schools, retail, and other critical amenities.

Overlooking Cash Flow

In many cases, leverage is misunderstood when buyers assume too much debt in order to buy properties without enough equity. There is a huge risk associated with this route.

A rental property should be capitalized by starting with cash flow instead of borrowing as much as possible.

Pricing the Deal Incorrectly

It is essential to purchase a property at a fair price if you want to build a real estate value. To evaluate a property’s pricing, direct investors should use a comprehensive financial model that considers many factors.

Learn More About Direct Real Estate Investing with Saint Investment Group

Knowledge, experience, and professional advice are the foundations of a successful investment portfolio. There are many questions you must be able to answer with confidence, one of which is understanding the difference between direct and indirect property investments.

If you’re looking for alternative investments, wondering how to get started, or just want to learn more about real estate investing, we can help. Contact us at 949-881-7128 today at Saint Investment Group today!