Investing in Special Real Estate

1. Introduction: Investing in Special Real Estate

There are numerous places to deposit your money when looking for investment opportunities. No matter how experienced you are, stocks, bonds, mutual funds, exchange-traded funds, and real estate are all good investments.

Real estate ownership is a potentially profitable and satisfying investment strategy. In contrast to investors in stocks and bonds, prospective real estate owners can use leverage to purchase a property by first paying a portion of the cost upfront and then gradually paying off the remaining balance, plus interest,

Although a traditional mortgage typically requires a 20% to 25% down payment, purchasing an entire property may only require a 5% down payment in some instances. Both real estate flippers and landlords are empowered by this ability to control the asset as soon as the papers are signed. As a result, landlords can take out second mortgages on their homes to put down payments on additional properties. Real estate investing can be profitable in five key ways.

1.1  Aspiring property owners can purchase a property using leverage, paying a portion of its total cost upfront and gradually paying it off.

1.2 One of the main ways real estate investors can profit from their investments is by taking on the landlord's position for a rental property.

1.3 Flippers can make money by purchasing undervalued real estate, fixing it, and selling it.

1.4 A more hands-off approach to real estate investing is through real estate investment groups.

1.5 Real estate investment trusts, or REITs, are stocks that pay dividends.

2. Manufactured Home Parks:

It is defined as any parcel of property on which three or more manufactured or mobile homes are utilized for living and parked for free or profit. It also includes any roadway, building, structure, vehicle, or enclosure used or intended to be used as part of the park's facilities. However, the term "manufactured home park" excludes the following:

A manufactured home park is any building, structure, vehicle, or enclosure that is used or intended to be used as part of the equipment of a manufactured home park. It is defined as a parcel of land, or two or more contiguous parcels of property, that has sites with all the amenities required for two or more separate manufactured homes to be inhabited permanently, either for free or for pay. If the contiguous tracts of land are jointly maintained and operated, their separate ownership does not prevent them from sharing a license as a manufactured home park. A manufactured home park is not meant to include a motorized recreational vehicle or an immobile manufactured home.210 ILCS Section115/2.5)

An area of land that has been methodically designed, built, managed, and maintained to offer long-term housing sites and facilities for mobile homes is referred to as a "manufactured home park."


3. Diverse Realty Investments:

Clients are advised by financial advisors to diversify their investment portfolios. Risk can be reduced using this strategy. Diversification in securities can be as easy as buying multiple stocks or investing in a fund that holds many stocks.

3.1 Similar principles govern real estate diversification.

Diversifying real estate portfolios can be made easier for investors by:

3.1.1  Buying a variety of individual properties.

3.1.2  Putting money into a single fund that owns many properties.

3.1.3  Putting money into fractional interests through real estate syndications

3.2 Diversification of Real Estate Investment Portfolios: Exclusive Control

Maintaining complete control over the investment is a common motivation for independent purchasers of rental real estate. They can make their own decisions regarding leasing, operations, capital improvements, financing, and disposition. This is especially important if your investment requires liquidity. You can also choose your asset class, location, and risk level with sole ownership. A stable property, for instance, with a long-term tenant on a net lease, will be less risky than a property built from the ground up or with a lot of vacant space. Owning your property has both benefits and drawbacks.

3.3 Property management will be one of your most significant operational choices as a sole proprietor.

3.3.1 You can choose tenants and set their rent and lease terms.

3.3.2 You can also talk about requests for concessions like lowering rent or making tenant improvements.

3.3.3 You could look at potential tenants based on their creditworthiness, industry, environmental, social, and governance (ESG) factors.

3.3.4 If you take care of maintenance yourself, you can make more money. Because the tenant is responsible for performing and covering maintenance and repairs, some properties, such as commercial buildings with triple-net (NNN) leases, have little landlord responsibilities. In contrast, maintaining units and common areas in good working order at residential properties may necessitate significant work and expenditures.

3.3.5 If you want, you can hire professional property managers to take care of maintenance.

4. Sole Responsibility equates to sole ownership.

You will need to research to find out what kind of work will be necessary during the time you expect to occupy the position. Additionally, you can decide whether or not to make major improvements to the property. These structural improvements will lengthen a building's usable life, like repairing the roof, maybe increasing the property's worth by modernizing the kitchen or bathroom cabinets or making the rental property more appealing to tenants by erecting or demolishing walls within. When and how to pay for the improvements will be up to you.

You can choose your lender and change the loan amount and terms if you want to use leverage (mortgage debt), including the following:

4.1 The date the loan is due.

4.2 The amortization schedule.

4.3 An interest-only period to meet cash flow needs.

4.4 The number of reserves that you or your lender hold

5. Alternate Investment Opportunities:

Hedge funds, cryptocurrency, private equity, intellectual property, and tangible assets like real estate are examples of alternative investment platforms that can give portfolios more diversification and boost long-term income over time.

Alternative investments should be considered by investors who are considering portfolio diversification. Alternative real estate investments are not regulated by SEBI and can be more complicated than conventional investments. Moreover, compared to stocks, the legal structure of alternative investments in India may be less clear. Because of this, one needs to know how they work before investing any money.

Accredited investors or wealthy individuals may be required for some Alternative Real Estate Investments. However, accessibility for all types of investors has increased in recent years.

Real estate has always been a popular alternative investment option alongside gold for most Indians. Land, residential properties, retail and commercial office space, hotels and restaurants, hospitals, factories, and other types of traditional real estate are all included. Co-living and co-working spaces have also recently emerged in the real estate industry, particularly in metropolitan areas. Nevertheless, investing in properties with ticket sizes of several million rupees for residential properties and crores of rupees for commercial ones had practically become unaffordable due to escalating real estate prices in urban regions. After that, the only options are to buy shares of real estate companies or invest in REITs, each of which has its risk-return matrix.

6. Summary:

For an investor focused on protecting their investment, debt real estate investment can be a lucrative option. However, fractional ownership is a great option for those willing to take risks. Start small and put no more than 10% of your investment portfolio into alternatives for the best results. As an investor, you can also think about a hybrid model in which some of your money is invested in equity ownership while debt channels secure the rest. As a result, you run a better chance of getting a higher return on investment without risking losing everything you invested. Real-estate alternatives are still in their infancy, but as the market grows, more opportunities will become available!

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