Many investors buy villas for investment in Miami, but very few consider other forms of hedging risks. Let’s explore how to protect your capital, in what ways real estate may be helpful in this, and why it is profitable. We assess and compare methods of overseas real estate investments and specify the pros and cons of each one.
Why real estate helps reduce potential losses
Real estate takes particular space among various financial instruments because it doesn’t depend on stocks and other usual asset markets. Using this tool, an investor can spread out the risk.
Three features of real estate
- The investor can create and predict their cash flows.
- It could provide a higher value for the asset.
- Real estate gives the investor peace of mind against rising inflation. As long as GDP goes higher, prices for real estate increase accordingly.
The advantage of property abroad
Such investments are independent of domestic political and market situations and natural calamities.
Properties located abroad provide a residence permit or even a citizen passport—a significant bonus to capital preservation without borders.
Real Estate Yield
If you’d invested in S&P 500 companies stocks in the early 2000s, these days you’d receive an 8.6% return annually. On the contrary, the U.S. REITs would bring you 11.8% of the respective yield.
Both these financial instruments perform well. But since the 2008’s economic crisis, real estate has grown faster, making itself a more lucrative tool.
If the investor combines bonds, stocks, and property, their portfolio performs better and shows less vulnerability to market downturns.
Methods for investing in real estate
- direct purchase
- obtaining REIT
- real estate private equity
- crowdfunding
Each way has its strengths and weaknesses. You can compare and choose the most suitable for you.
Direct property purchase
These properties for lease include both residential and commercial complexes such as shops, cafes, storage areas, and hotels with reputable operators.
- Yield: from rent and after resale
- Advantages: Freedom of choice: you pick the object and decide on earning options and selling date.
- Disadvantages: unavoidable “offline” and legal inconveniences: regular visits, landlord-tenant interaction, legal and tax reports, hidden construction “surprises.”
REIT shares
Real estate investment trusts channel money to social, retail, and wholesale objects and different types of land.
- Yield: investor’s income is a combination of REIT’s dividends (up to 90% of income) and property price changes.
- Advantages: REIT takes care of all real estate objects, and the investor receives rent payments and dividends — all from the property that doesn’t belong to him.
- Disadvantages: some REITs keep their building management expenses secret from investors who don’t even pick objects.
Investment trusts can be private or public. The cheapest private trust share will cost you at least $10,000. They are not traded on the stock exchange and are available only for qualified investors.
Public trust shares are traded publicly for less than $100; their calculations are transparent.
Both REITs can offer mortgages directly for specific projects. They often purchase mortgage-backed securities (MBS), which bring investors higher dividends.
REPE
The abbreviation stands for real estate private equity. You must qualify first and then pay several hundred thousand to enter such a fund.
- Yields: Most REPEs earn combined income from each object which brings carried interest and capital gains
- Advantages: they channel income from various highly profitable properties but sometimes can leverage the power of options or use other unusual financial tools.
- Disadvantages: limited liquidity, many factors depending on the fund members, relatively high entry level and reduced exit options, extended holding periods.
Crowdfunding
It’s quite a new concept that has risen since 2019. Such fund raises capital online and channels it to specific projects known beforehand: real estate objects for rental payments, renovation, development, or purchase.
- Yields: there are two forms of crowdfunding. Debt is less risky and brings up to 12% of fixed return. In an equity project, the investor becomes a partner and receives up to 20% share of the yearly income after the project is completed. The risk is higher, so such projects attract fewer investors than their first form.
- Advantages: the investor can enter any project based on their interests.
- Disadvantages: no access to control the chosen project.
Bottom line
American real estate market offers various investment options. If you want to purchase property directly from the real estate market of Florida, welcome to our website https://florida.realestate to pick any object, depending on your preferences and goals.