In today's thread 🧵…🏡 Direct Real Estate Investment VS Indirect Real Estate Investment Let's get started👇
Table of Contents: 1️⃣What is Direct Investment? 2️⃣What is Indirect Investment? 3️⃣How can I invest?
1️⃣Direct investment: in properties intended to generate a fixed return from: ✅development and construction of projects for future resale. ✅Financing investors and earning a profit. ✅Purchase and sale of an opportunity.
This requires a high level of participation, and beyond having someone responsible for the project, such as an architect, it requires a significant amount of time, since most of the management is carried out by the investor himself.
In 2020, 10.8 years of disposable income are needed, compared to 8.2 in 2000.
Factors to consider: ✅Responsibilities to assume when renting the property. ✅Possible rate increases. ✅Insurance costs, taxes, assessments, maintenance, etc. ✅Economic factors: rising unemployment, credit restrictions. ✅Occupations.
The Capital Asset Pricing Model (CAPM) is a streamlined valuation tool that incorporates risk and opportunity cost concepts into the analysis. This model focuses on obtaining the return on investment (ROI) derived from rental income and compares it with 👇
Other risk-free investments. If the rate exceeds the potential ROI of rental income, there's no point in taking the risk. The positive aspect of the CAPM is that it considers the risks inherent in property income, i.e....
Not all properties have the same risk, but are weighted by their age or location, for example. Older properties incur higher maintenance costs.
The approach is based on the potential income from the property's rental rate of return relative to the initial investment. It is calculated as: the gross annual rental income divided by the original cost or current value of the property.
An improved version takes into account discounted cash flow, in which money received in the future will be subject to inflation risks and must be discounted to bring it to its present value.
2️⃣Indirect real estate investment Its name derives from the fact that the investment requires a very low commitment from the investor in the project or transaction because it involves placing the investment in a security or bill secured by real estate.
It can also be the product of managing a portfolio of real estate or mortgage loans directly or through a manager, i.e., an investment firm dedicated to purchasing securities or mortgage bonds that will offer a return on investment.
The final option is through the purchase of these asset managers' shares on the stock market. In this case, investments are made through Real Estate Investment Trusts, or more commonly known as REITs.
Finally, I leave you with a selection of the most outstanding funds in real estate REITs👇
European 🇪🇺
Global 🌏
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