Investment

3dollaressay provides cheap essay writing about the positive and negative impacts of Financial Investment in real estate (property) for the public.

The major goal of real estate investors is to maximize their wealth, while keeping balance of the investment risks. In deciding whether to purchase or dispose of a property, investors use a broad variety of analytical approaches, ranging from comparatively simple techniques, to composite after-tax cash flow analysis. This paper will observe the main approaches which should be useful to investors for determining the value for income producing real estate. Real estate ownership is a serious and profitable part of economy.

The real estate management industry is growing increasingly competitive as developers and others enter the real estate management business. This industry merger is still accelerating. Property investments are profitable vehicles for investors. The diversification may strongly decline the risk of a real estate portfolio. People who want to implement on real estate diversification strategy have two possibilities: they can invest directly, by buying actual property, and they may invest indirectly, by buying the shares of listed property firms.

Financial investments in rental properties have proven to be very attractive to New Zealand citizens if the increasing growth in this area is anything to go by. Financial Investment in real estate must compete with stocks, participatory business ventures, and other active and passive investments for investor attention. Resolutions in managing property investments are based on complicated factors:

• Contract rent and escalation formulas often dissimilar due to various ages of leases anddates of most recent renewals;
• Vacancies upon lease expiration are highly unforeseeable.  Improvement costs may be irregular because of staggered lease expirations, mergers, or divisions of space for future  tenants, and because the existing improvements were made at different  times;
• Financial investment value depends not only on the initial state of the asset, but also on thelong-range plan for managing, further amending, refinancing, and liquidating it.

Many factors affecting investment performance are highly unclear; because real estate is typically held for a long period, the effects of even small doubtfulness can become magnified. New Zealand offer excellent potential for growth in income and capital values of real estate holdings. Because property investment is normally considered to be less inconstant than stocks and bonds it has traditionally attracted permanent rates of return, with impressive returns only occurring in position markets. Performance and returns from investments in property can only be earned over long periods of time and hence this asset class is most appropriate for long-term investors.

The real estate business is now bestirring itself to reach professional status. In the opinion of many observers it has already made greater progress along this line than any other vocation in an equal length of time. To the poor and middle classes of society the ownership of real estate is vital to economic improvement. It is literally true that real estate sales record the investment of the savings of thousands of people. Because private property in land is the beginning of frugality, competence, and the identification of civic responsibility, the ownership of real estate is essential to the economic and political development of society as a whole. Understanding the real estate market is the second requisite. Although the conduct of the real estate business should be shaped according to the character of the market, the possibilities of market analysis have hardly been exploited at all. Scientific operation requires that brokers understand why people buy real estate, what types of real estate they buy, when they buy, where they buy, and, not of least importance, on what terms they will buy.

The basic property categories in the fund will involve commercial space – office and retail, residential, hotel and development space. By using a trained and professional portfolio management and performance appraisal approach, we will not only reduce the risk of loss but increase the occasion for significantly higher returns.

Residential Housing

There are two types of residential investments that the investor may consider. Financial investment in luxury villas and investment in small residential programs such as condominiums or townhouses. The investor will invest in this type of asset in order to gain short term rental income and capital gains.

Office and Retail Commercial Space

Investment in commercial land is often beyond the gain of the ordinary investor because of the size of the investment necessary. This type of investment may be very pleasant because, in addition to the appreciation of the value of the building, cash returns are produced over the course of the investment through rental earnings.

Two categories of commercial space that are especially successful are office land and retail space. Although retail space has the potential of attracting meaningfully higher rents per square foot than office space, it is also a more dangerous investment due to its more direct affairs with the health of the local economy.

Development Space

Investment in such kind of property is the simplest form of real estate investment and is an investment that many can participate in. Nevertheless the magnificent growth trends displayed in the value of land, there are other forms of real estate investment that offer the potential for even more pleasnat returns which has been described above.

Positive impact

The main purpose of a real estate investment is to pool resources to grow the investor’s purchasing power and leverage over that of a single investing essence. Investing through a real estate fund represents an investment opportunity that allows everyone, from the large financial institution to the small individual investor, to participate in the rapidly growing property markets of New Zealand.

Some of the important benefits are outlined below:

Ease of investment. From the investor’s outlook, the investor simply  entries a membership agreement and contributes an incipient investment. At that point, the manager of Investment Company takes over. The investor no longer has to clean the market looking for potential investments.

Stable Return on Investment. An ordinary real estate investment (other than undeveloped or “raw” land) offers a full return, which consists of both an earnings element and capital valuating.

Reduced Investment Risk. A great amount of the individual property risk in property should be managed through variety by (a) real estate type and (b) geographic position.

The main real estate types involve office, retail, industrial, residential, hotel and development space. If a person holding a portfolio of these various types of properties in few places significantly he reduces the risk of loss from any one property.

Higher Returns With Less Hassle. People are busy, and have their own business and personal commitments. Financial Investment in real estate the right way may be a full time job. In the investment company, the manager can collect information for the investor.  Any answer that promises more than double the returns of T-bills, Bonds and bank deposits and still remains comparatively liquid is a pleasant alternative in today’s market. Although no investment is bulletproof, real estate investing offers tangible and legal defense for investor’s money. Real property is a much special asset than paper. If a business fails and investor own its stock, he has little to no collateral to fall back on.  A house, an apartment building, a lodging building or a part of space are all tangible assets that defense against potential losses. Investing in real estate wraps up all the benefits of investing while maximizing returns and minimizing attempt on the part of the investor.

Negative impact

The planning and controlling of large, multiple use real estate programs is an extremely hard task. There are and uncertain combined financial, political, and social factors affecting real estate developments. Main concerns lie in the rather long time horizon and large capital investment essential to convert space into a merchantable product. Besides technical   engineering problems, the real estate developer must deal with the volatile demand for real property and with constantly changing costs over the designing and construction periods. He or she is  also influenced by  tenseness imposed by New Zealand government that are troubled by the potential  social costs of new developments and by the actions of environmentalists who are  concerned about the  possible positive and negative impacts of a development. According to A.Schätz: «Investments in direct real estate nevertheless suffer from several disadvantages. Unlike stocks or bonds, neither the market volume nor the spectrum of the international real estate market has been developed to a sufficient extent up to now. In addition to issues of illiquidity, property investments are characterised by low information efficiency and insufficient market transparency. These drawbacks are noticeable in comparatively high information costs and thus increasing transaction costs, which in turn significantly reduce profit margins.» (Schätz, 2010). The approaches for analyzing investments in real estate and exchange-traded! Assets (stocks, bonds, and so forth) differ intensely due to the following factors:

• Income property usually cannot be acquired or divested incrementally as can most other types of investments; and other decisions,  such as improvement and financing, also involve discontinuous rather than  continuous allocation of funds, often millions of dollars at a time;
• Real property assets are relatively illiquid. Mistakes usually cannot be corrected fast or without important cost;
• Transaction costs for real estate are very high. In a complete turnover of a portfolio of such assets, monetary transaction costs can sometimes exceed seven percent of total asset value and 30 percent of equity. In addition, an extraordinary amount of senior management time is required for property acquisition and liquidation activities. Thus organizations must be prepared to live with their resolutions for some time;
• The management of real estate portfolios may be either active or passive. The mostproductive portfolios are usually those that treat the investment as active. Unlike most​   securities​   investments,​   real property assets may be improved by their  owners in many ways (such assets have  upside potential). The performance of the portfolio may depend upon developing and executing an optimal long-range action plan for each property as much as on selecting the primary portfolio;

R.Trippi wrote: « The investment performance of real estate is markedly sensitive to external environmental factors, such as general business conditions, interest rates, inflation rates (which may be reflected in cost-of most other types of investments; and other living rent escalation clauses in leases), taxation policies, and local factors such as changes! in neighborhood! Quality and vacancy rates.» (Trippi, 1990).

Information about accessible investments, such as asking prices and cash yields, and about potentially interested buyers is often not disseminated in a  timely and consistent mannerto all prospective market participants, even within  small geographical places. Each property is unique in some way, and at present no centralized auction market exists (although several efforts have been made in the past to make such markets). Because of these factors, financial theorists often characterize the real estate income property market as inefficient. That is why M.Bond wrote: «Market participants include real estate investment trusts, private and public syndication firms, pension funds, REO (real estate owned) departments of lending institutions, bank and savings and loan trust departments, property developers who retain an equity interest in their completed properties, insurance companies with portfolios of properties that they own or manage for pension funds and other institutions, and exchange-traded in real estate investment trusts» (Bond, 1998).

Financial Investment in real estate provides a appropriate investment vehicle for investors of limited financial means who may pool their materials, staff, and other assets and invest in real estate properties without the main commitment of time and capital required for direct ownership. Finally, financial investment in real estate is that they are probably the best inflation hedge around.

​                                                                              References

Bond, M. (1998). Real Estate Returns and Inflation: An Added Variables Approach. Journal Of Real Estate Research, Vol. 15, No. 3.

Francis, J. (2001) Empirical Risk-Return Analysis of Real Estate Investments in New Zealand, 1972- 1999. Journal of Alternative Investments.

Miles, M. (2004). Commercial Real Estate Returns.  Journal of the American Real Estate and Urban Economics Association. Vol. 12.

Schätz, A. (2010). Real Estate Equities –Real Estate or Equities?. Real Estate Finance.

Trippi, R. (1990). Decision Support and Expert Systems for Real Estate Investment Decisions: A Review. Operations Research Society of America and The Institute of Management Sciences.

Ziering, B. (1998). Real Estate Benchmarks and the Public Market Real Estate Dynamics Shaping Them. Real Estate Finance.

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