Alternative Investment: Real Estate (Part I)

Real estate is considered to be one of the earliest investment vehicles, with its foundation based on basic physiological needs such as food, clothing, housing, and sleep. Even though it was one of the first investment assets, real estate is still attracting a lot of attention from investors.

The return on real estate is determined by how it earns a rental income and, on the other hand, its appreciation, which is sensitive to inflation and exchange rate movements.

It is possible to purchase any one or two properties and implement asset management for retail investors. The investment of real estate includes costs such as valuation, legal fees, brokerage fees, taxes, and stamp duties, as well as post-purchase real estate operating costs, rental income taxes, and property insurance premiums.

However, Real Estate Investment Trusts (REIT) allow you to invest in as many, and as many properties at a time, to suit your potential budget, to reduce risk, and the convenience of having these assets under professional asset management.

Investing in real estate has the following risks. These include:

  • Location, location, location… Location is a factor influencing the value of real estate and income flow. So you should seriously study the location of the property.
  • Incurring a loss when real estate prices fall in the market
  • Not being able to rent due to unprofitable location, construction quality or too limited target group
  • Negative cash flow or rental income not covering interest expenses (in case of borrowing), real estate operating expenses, taxes, etc.
  • Irresponsible tenants. Contacting a professional asset management company can save you time and money, as there is a risk of default, non-payment of rent, or misuse of assets.

How much does investing in real estate work?

Investing in real estate requires more work and research than keeping money in a bank, investing in stocks, bonds, or mutual funds. Most investors spend a lot of time and effort on tasks to manage their real estate investment. These include:

  • Finding the right property to buy;
  • Finding suitable tenants and managing relationships with them;
  • Responsibilities in maintenance and operation of assets.

Thankfully, there are many real estate brokerage companies with real estate agents and brokers who provide professional real estate management, management, sales and leasing on your behalf.

Investments can be made by purchasing a unit title of a professional real estate investment fund. As an investor, you can evaluate whether the fund is performing profitably after deducting the deductible expenses from the rental income, and how the value of the underlying assets has increased or decreased.

Real estate investment funds allow small investors to benefit from large commercial and service areas, office buildings, and industrial buildings that cannot be acquired on their own, in addition to housing, and are different from apartments in terms of investment.

A Real Estate Investment Trust is a special purpose company (SPC) that allows you to invest in real estate in part. In other words, real estate will have many investors in the same way that a company is divided into shares and many shareholders become investors in the company.

  1. High liquidity

A REIT is more liquid than traditional real estate investing methods. This is because investors can invest in a certain percentage of the property on the basis of common stock and fund share trading, and it can be easily and quickly be sold on the commercial market.

2. Risk distribution / diversification /

Fixed assets differ in purpose, size, construction and use, so they have different returns and levels of risk. As the post-pandemic economy starts, the theory that we shouldn’t put all our eggs in one basket is confirmed one more time, you probably don’t always want to own the same type of real estate.

3. Fixed cash flow with dividends

Unlike stocks or derivatives, real estate, like bonds, allows investors to earn a fixed rental income.

4. Risk-adjustable, high return

Real estate is characterized by low liquidity, but according to the risk matrix real estate is considered to be a low-risk investment. Real estate risk can also be adjusted and the asset class can generate high returns.

In addition to providing these advantages to investors,

ORDA will allow it to legally purchase fractionalized digital real estate units that are competitive, profitable, reliable and attractive in Mongolia and internationally. Not only will you be able to buy, but you will also be able to get the most out of your real estate investment from one stop wealth tech platform. .

Our next article will bring you to interesting topics such as stories of successful real estate investments, what to look for when buying real estate in major cities around the world, whether to buy or rent real estate, and the new trend of “fractionalized real estate investment”.

Have a good day and until next time,

Kherlenchimeg Altankhundaga

CFO,Steppe Group.

ORDĀ makes alternative investments easy and borderless.