Real property investing

Real estate investing is a process in which real property is treated as a tool for gaining profit, i.e. it is bought, sold, owned, managed and/or rented with the aim of generating income. Real estate investing is different from the other forms of investing in that property market is usually less organized and requires a lot more research to be conducted for the decisions to be efficient. Besides that, unlike other investment instruments, real estate value is highly dependent not only on the inherent properties of an object (which can be influenced), but also on its surroundings and general prestige (which cannot be influenced as easily). This also adds some complexity to the matter.

If you own the house/apartment which you live in, it is also technically considered to be an investment, because it is a part of your total assets. At any point it can be sold or rented out, this becoming an apparent source of income. For many people this is where real estate investing ends. This article, however, explores the possibilities of buying property besides your main residence with the sole aim of generating income. For this purpose, the two major categories are residential and commercial property investments.

Residential estate

The three primary methods of investing in residential property is buying and renting, buying and selling, and operating through an agency.

Renting out

The simplest way is renting out a property you own. This means that a landlord (the property owner) grants a tenants or tenants the right to reside at the property in exchange for money (payments are usually made on a monthly basis). The landlord is also responsible for the maintenance, management, tax and mortgage payments for the property. These factors have a major influence on the size of the rent, keeping in mind that the main aim of such a property investment is to generate profit, i.e. the income must be higher than all the expenses, and the only source of income is rent.

As with any other types of property, the correct location is essential. One of the most profitable residential estate locations are near high schools, universities and alike. Quite naturally, it is important to avoid locations notorious for criminal activity. It is also useful to to follow news about labour localization and move your real estate investing projects to neighbourhoods popular with employers, as proximity to one's workplace is an important factor for any potential tenant. This also relevant for any kind of development - a growing neighbourhood is good place for long-term investments. Keeping an eye in the financial situation in the area is valuable as well - it is important not to set the rent too high, as it will scare off the customers even in an advantageous neighbourhood.

The biggest potential disadvantage of renting out a property is an unsuccessful initial investment. This may lead to low rents, damaged property or a total absence of tenants, which would leave an investor to cover the mortgage from his/her personal means. On the other hand, a good choice of initial property can bring a steady stream of income, allowing for new and new investments.

Trading

Real estate trading means buying and subsequently re-selling pieces of real estate for profit. This is a more active and demanding variety of property investment, as it requires the investor to constantly seek new estate and customers to sell it to. However, it also allows for a far greater income. The property in question is often held for a relatively short time, 3 or 4 months, as selling it as fast as possible is the key to producing a stable stream of income. The key ability of a real property trader is to detect estate which in time will both remain in demand and increase in value. Another approach is improving the property, thus ensuring that it will be more valuable when sold, that it has been before.

Both of these approaches have their own advantages and disadvantages. While trading without improving generates income faster and allows holding multiple properties simultaneously, it is a distinctly short-term investment. Trading with improving, on the other side, guarantees income (if the property is actually sold) and can act as a long-term investment, but also incurs more expenses, which usually prevents an investor from holding multiple properties at the same time.

Agencies

A real estate investment agency can take number of forms, which are usually defined by the goals the investors wish to achieve. In any case, these agencies usually act on behalf of their investors to purchase, manage and sell or rent out properties. Depending on the structure of such a company, an investor may or may not have the right to participate in the process of decision-making. In any case, an investor is freed from the obligation of finding estate, buyers and/or tenant, allowing him/her to concentrate on the management of investments.

The most common types of real estate investment agencies are RE investment groups and RE Partnerships. Real estate investment groups invest in property and then sell that property to the members of the group. Additionally, they may undertake the management of the said property in exchange for a percentage of rent income, while the property itself still legally belongs to the person who has bought it. Partnerships, on the other hand, invest in property and sell it to third parties, while investors receive the shares of the company.

Latvian real estate

Real estate investments in Latvia provide a number of opportunities for any type of investments and property. As of 2017, the most lucrative type of property to invest into is retail property, amounting to approximately 50% of the total investment value. The second most profitable area is office buildings: last year, 3 out of 5 most valuable deals were related to leasing office spaces. Several groups of analysts note that, due to the activities of major Latvian real estate investors, the next two years are especially suitable for selling large property portfolios, as it will probably be easier to do so in the nearest future, rather than later in time. Major Latvian banks also note that in the nearest 20 years investing in stable assets, such as property and especially land, is a very advisable decision. This is mainly because of the current economic growth, which promises an increase in real estate value.

In terms of more general statistics, Latvia, along with the rest of Central and Eastern Europe is the 2nd most popular location for real estate investors in Europe, and 3rd most popular in the world. The average return values range from 5% to 10%. As of 2017, residential property building is one the rise, and it is projected to remain so at least until 2019. This means that a significant number of new residences will be available for investing in the nearest future.