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Aug 28

Are there any safe investments today? 8

Real Estate

Real estate is not too different of an investment from some commodities, like gold or oil. The big difference again being the time or duration of the investment. Gold or oil can be exchanged daily. Real estate must be held at least a few weeks for closing, renovations and resale. More likely, a piece of property is held months or years. The biggest similarity is the need to sell the commodity or real estate property at a higher price than what you paid, in order to make a profit.

Like dividends on a stock, unless that property can generate a steady income during the ownership period, such as through sale of raw materials, rental income, or farming, the only way to realize income on real estate is through selling at at a higher price than what you paid. Investing in real estate for its rental, raw material or farming income is called ‘commercial’ real estate.

Owning your own home (or two) for personal use is considered ‘residential’ real estate. Only commercial real estate can generate income outside of (in addition to) the sale of the property. For residential real estate: selling higher is the ONLY way to make it profitable.

A trader can make fractions of a percent each day, and end up with a sizable yearly income. The overall direction of the commodity, up or down, has almost no bearing on a day trader. Similarly, a loss one day can easily be offset by gains the next.

For residential real estate, the only money that can be made is on its sale. And, the turnaround time is in the months or years range, so losses are not so easily offset.

Commercial real estate carries slightly less risk because there is a greater likelihood of earning sufficient income through non-sale activities (e.g. subleasing) to offset the lower sale price of the property.

In the next section we shall look at Angel Investing

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