Real estate bonds are a type of loan that provides funds for a borrowing account, often involving a government or corporation body. In other words, bonds are documents that perform as proof of loan between an investor and a corporation or government entity. In this agreement, the investor gives the corporation or a government body a certain amount of money for a predefined period. In return, the investor, who is the lender, gets a periodic interest payment (outside the capital lent). Once the agreed-upon time frame expires, the investor returns the capital or total amount paid to the borrower (corporation or government).
Real estate bonds work the same way. However, in this case, these bonds are backed by real property, commercial mortgages, or other real property debt. When you invest in real estate bonds, you lend out money to those related to real estate through REITs, exchange-traded funds, and real estate crowdfunding platforms.
The major benefits of investing in real estate bonds include but are not limited to the following:
- Fixed Income
As real estate bonds provide a fixed interest rate, they provide investors the reliability of a steady income stream to depend on.
- Principal Preservation
Unlike stocks and many other types of investment opportunities, bonds don’t fluctuate in value. This means that the investors typically receive the same face value after maturity. This helps with capital preservation, assuming the issuer does not default.
- Inflation Hedge
Real estate is considered a hedge against inflation. Although this hedge is not as direct as owning a physical real estate, it offers a promising level of resistance against inflation.
- Capital Appreciation
Depending on the market conditions and the terms of the bonds, sometimes there is potential to see a capital appreciation. This often happens when the demand for a bond increases in the market.
- Lower Volatility
Compared to stocks, bonds in general, including real estate bonds, exhibit lower volatility. These features make real estate bonds the best option for conservative investors.
- Income Stream
The regular interest payment provides a steady flow of income for investors. This can be appealing to those who are income-oriented. Retirements who depend on a passive income option can especially benefit from this.
- Diversification Benefit
Unlike stocks and other types of bonds that are tied to industries, real estate bonds perform differently, which increases their ability to reduce the overall portfolio risk.
If you are looking to invest in real estate immediately with little money, real estate investment trusts (REITs) can be the best option to consider.
Often compared to mutual funds, REITs are issued by public companies raising funds by selling shares of stock and issuing bonds and using this capital to purchase and lease out real estate such as office buildings, retail spaces, shopping malls, warehouses, apartments and hotels.
REITs tend to pay higher dividends, which makes them a very common option for retirement plans. If you don't need a regular income, you can reinvest these dividends to grow your investment opportunities further.
These real estate investment trusts don’t feature the responsibility of owning properties physically. The management will handle the ownership and rental logistics related to the property. All you have to do is invest and collect your dividends, which is generally higher than stock-based investments.
However, it is important to remember that the type of REIT you purchase is a key factor that decides the amount of risk you will incur because non-traded REITs are quite difficult to sell and might be hard to value.
For this reason, new investors should generally stick to publicly traded REITs, which you can purchase through brokerage firms. You will only need a brokerage account for this purpose. Opening one only takes less than 15 minutes, and most companies don't require an initial investment. This feature that allows easy trading makes REITs the most liquid real estate investment available.
If you prefer to be exposed to a more diversified selection of real estate investment in Dubai, consider buying into a fund that has interests in many REITs. You can do this through a real estate ETF or by investing in a mutual fund that holds shares of multiple REITs.
Contrary to popular beliefs with real estate investment in Dubai, you don't have to buy rental properties to maximise profits from property investments. This is where concepts like house flipping can be an alternative and sustainable option to your investment planning. In simple terms, flipping a house involves buying a discounted property, fixing or renovating it, and then selling it for a profit.
From your end, you need to make sure you are choosing the right properties in promising locations. Through this, you can turn a quicker profit than by managing a property investment in Dubai.
To be a successful property flipper, you need the ability, knowledge, and skills to predict a property's potential and have a vision for bringing it to life. Having sufficient cash, a reliable team of contractors, project organisation skills, and accurate cost-estimating skills can also help you increase the likelihood of earning a profit from flipping properties.
As a general rule, remember that the sooner you can sell the property, the less time, money, and effort you will spend on holding costs, including mortgage payments, utilities, and other expenses related to insurance.
Besides that, if your home flipping strategy demands a lot of renovations, then it can carry extra risk and high out-of-pocket costs. You will also be required to obtain permits and remodelling, which can cost more than you expect, especially if you hire contractors or outsource construction.
To reduce the cost and effort required to flip properties, always choose homes that don't need major renovations in up-and-coming areas. As another effective strategy, you can consider renting the property while waiting for the home value to rise before selling. Most importantly, learn the art of identifying attractive neighbourhoods that will let you sell your purchases at a premium.
4. Buy A Rental Property
If you are looking to make a major commitment to real estate investment opportunities, then buying rental properties is a classic option. The major advantage of rental properties is that they offer a steady cash flow and have the possibility of appreciating over time- depending on the location.
Landlords can also deduct many of the costs associated with property management, such as maintenance, repairs, insurance premiums, utilities, mortgage interest, administrative fees, and depreciation.
There are two main ways to make money with rental properties.
1. Long-term rentals
Long-term rentals: These are properties you can rent for at least a year or longer. It assures a steady flow of cash, but it depends on the tenants being reliable as well. To make use of this option, you can choose between a multi-unit property or a single-family home.
2. Short-term rentals
This is targeted at rotating tenants who look to stay as short as one night, like Airbnb. If you are considering this option, you have the choice to list your entire home or apartment when you are away from the city or place, or you can simply buy an entire property meant only for short-term rentals.
The downside of this option is that it can be a time and energy-consuming investment that requires a high start-up cost. Landlords will have to deal with property damage, late payments, and unruly tenants.
You will also need to find and vet tenants, pay for ongoing maintenance or renovations, and deal with any other issues the tenants are facing. While you can reduce this burden by hiring a property management company, it can cut down your potential returns from rents.
5. Purchase an Off-plan Property
Off-plan properties are another best way to invest in real estate in 2024, which has been attracting a lot of investors in recent times, primarily due to their reasonable price. Off-plan properties are priced less than ready properties, making it a very convenient option for anyone starting on investment planning with a lesser amount. It also gives investors the prospect of property increasing in value near completion and handover.
This probability is high in Dubai, which is witnessing steady growth in the real estate sector. Investors can benefit from flexible payment plans with small down payments of only 10%. Some developers also offer the option of instalments for 4-5 years, which gives the benefit of renting out the property before starting to settle payments.
This allows investors to build their portfolios according to their cash flow capacity. Adding to this, reputable developers build communities that gain significant value as they mature, which increases the potential to benefit from higher returns.
However, it is also important to emphasise that any changes in the market can be expected and may affect the original value of the property. Likewise, off-plan projects have the potential risk of being cancelled or delayed. This is why research on the developer is crucial when choosing off-plan property investment.
How To Invest With AIX?
We believe there is no one-size-fits-all when it comes to investments. Especially considering the dynamic landscape of property investment in Dubai and the many options available to benefit from, stepping into a decision requires careful planning and execution.
This is why all our plans are personalised to your financial objectives, risk appetite, and budget. If you are contemplating investing in real estate in 2024 and need the right professional guidance, AIX is here to support you every step.
You can talk to one of our financial advisors at +971 56 732 7222 or fill out our inquiry form here at contact-us, and we will get back to you at our earliest convenience.
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