Investing In Commercial Real Estate Or Residential Real Estate
These days, we get to see news regarding property prices, Real Estate market and news about the real estate boom.
Real estate is basically defined as an “interest” on land, held by individual or an entity, with a building on it, along with other natural resources, like crops, soil, etc.
An interest is held in two ways, one by buying the entire land and acquiring complete ownership, and two via acquiring leasehold on the land for a defined number of years as per the agreement.
If you browse through various real estate investor websites, mainly two kinds of real estate categories can be found easily:
The commercial real estate interest rates for mortgage finance are generally higher than residential real estate. But even then, the returns on investment are much better. For example a residential property will give average 6-8% returns every year, as against 10-15% return on commercial property.
1. Commercial Real estate
2. Residential Real estate
Mostly businessmen, real estate investors and real estate companies invest in commercial real estate. They buy land and build commercial offices for leasing or renting them. This way they are able to earn passive income on a long term basis.
Investing in residential real estate also occurs in the market.
The homes are built on land that is developed and they are sold in the market to the customers, or they are leased or to let.
Factors Responsible For The Real Estate Boom
Now, as matter of fact, with rising incomes in an economy, people are naturally interested to buy real estate. The real estate investors take into account the various factors that affect the prices of real estate. Chiefly it includes the following:
1. Proximity to a city area.
2. Utilities available(power, water etc)
3. Future city expansion
4. Fertility of land for agricultural purposes. Etc.
5. Real Estate market Demand
As you can see, buying real estate is an investment into profit for future. Once you decide to buy a land, either you can keep it unproductive, or you can lease it out to businesses and others to earn passive income.
For example, you can buy a land for affordable prices, and can hold it for a long duration. Let’s say ten years, after which you sell off the land for a profit.
So you can see that real estate prices are dependent upon many causal market factors.
Also, you should know that real estate investment requires two things in plenty:
1. Time till maturity of the real estate, i.e. higher prices in 10-15 years
On an average real estate can give you 200% returns easily in 10 years time. In countries where real estate growth and investments are aplenty, the return on investment is proportionately higher than anything else you would find.