How to diversify real estate investments for generating passive income?

Investing in income-generating real estate: an expert's perspective

Eric Rosenfeld, a specialist in income-producing real estate, shared his thoughts on the prospects of investing in this sector, presenting the second part of his analysis following a recent webinar. The first part of the report is available in a separate format. In this document, he explores the risks of traditional real estate investments and outlines key goals that investors should set for themselves.

Traditional approaches to investing

If we talk about those who are interested in receivingpassive incomeWhen it comes to real estate, they often adhere to rather conservative strategies. Most of them focus on traditional investment models, such as the complete acquisition of a property, for example, buying an apartment with the aim of renting it out. Any alternative options that differ from this approach are often perceived as less reliable or unjustified.

Alternative approaches to property ownership

Nevertheless, there are many ways to own real estate. For example, in Finland, the process of acquiring housing has its own peculiarities:

• The apartment buildings belong to housing cooperatives.
• The cooperatives control the land plots under this development.
• When you buy an apartment, you become a shareholder of the cooperative.
• The rights to use the apartment are determined by the number of shares acquired.

Although formally this does not grant ownership in the classical sense, it in no way limits the opportunities for the owners. The apartment can be sold, inherited, or gifted to others. Thus, these ownership schemes do not change the essence of the issue, but rather offer alternative approaches to the question of ownership.

Long-term rental as a form of ownership

Another option is long-term rental, known asleaseholdIt is worth noting that in a global context, there are two main ownership models:

• Freehold: corresponds to the Western system of full ownership.
• Leasehold: implies a temporary rental.

These models are particularly common in the United Kingdom and several Southeast Asian countries.

Restrictions for foreign investors

In some regions, such as Thailand, the only legal option for foreign citizens to acquire property is through leasehold. This means that you will not have full ownership rights to the property, but only the rights to lease the land for a predetermined period.

• In Thailand, the standard lease term is 30 years with the possibility of extending it up to 90 years.
• In Cambodia, the term can reach up to 99 years.
• In Indonesia, it's 70 years under certain conditions.

Upon the expiration of the lease term, property rights are lost, which also needs to be taken into account when developing investment strategies.

Conclusions for investors

Consequently, the horizons for real estate investments are much broader than just full ownership or a single type of transaction. By considering various alternatives and models, investors can find more profitable and suitable ways to enhance their investments that are tailored to their needs.

The value of real estate offered for sale through leasehold directly depends on the remaining lease time. Before making a decision to purchase this asset, it is crucial to clarify with the landowner the terms and timelines for possible lease extension, as well as to determine the mutual obligations of the parties involved in the transaction. You can find more detailed information on issues related to real estate, immigration, and investments in our Telegram channel.

Shared ownership

Fractional ownership is an excellent option for people with limited financial resources or those looking to allocate their funds wisely to achieve stable income. In today's economic conditions, diversifying investments has become an important strategic step. By distributing your assets, you can significantly reduce risks and even increase your capital.

Rational asset allocation

Suppose you don't want to invest your entire amount, say 50,000 or 200,000 euros, in a single property. Dividing your finances into several parts is a sensible and thoughtful decision. However, you should be prepared for the fact that such investments imply only partial ownership of the asset, not full ownership.

• Share sizeThe one you will be able to purchase will depend on your financial capabilities.
• Some investors may believe that by owning only a part, they do not have rights to the asset and do not control it.
• But, like in the case of full ownership, shared ownership is regulated.legislation of the countrywhere the property is located.

Return on investment

As for the returns on such investments, everything is quite transparent here. Property management is entrusted toa professional management companythat addresses all issues related to the payment of returns specified in the contract.

Project example

For example, in central France, a project for a five-star complex called "Wyndham Halcyon Retreat" is actively being implemented, covering one million square meters and including both a golf course and a spa area. A cottage community is being built nearby, offering studios and apartments of various sizes.

An association is created for each apartment in this complex, which allows investors to:

• acquire shares
• to exercise full ownership

The minimum investment amount for shared participation is€17,230The investor signs a contract with the management company, which sets a guaranteed return within the range of6 to 8%per year from the invested amount. The specific percentage depends on the terms of the contract. There are also two options for exiting the project — through5 or 10 years.

Thus, fractional ownership expands opportunities for those who want to profit from real estate with lower risks.

Benefits of exiting the project

Upon exiting the project, your share will be bought back at its original value, taking into account a bonus that depends on the increase in the project's value. This indicates that the liquidity issue has been addressed in advance.

Advantages of the initiative

The main advantage of this initiative is that it is primarily aimed at local golfers and their families. As a result, the project has not been significantly affected by the global tourism crisis. This situation clearly demonstrates how even with modest investments, an investor can expect stable and predictable profits, as well as certain guarantees of liquidity.

Collective investments through REITs

As for collective investments in this segment, they are represented through real estate funds, known asREITThis method of investing is a great alternative for those looking to invest in affordable real estate with the aim of generating passive income.

What is a REIT?

REITIt represents an organization that manages various types of real estate, such as multiple retail locations or logistics centers around the world, and earns income from leasing these properties. In order for a company to be classified as a REIT, it must meet a number of requirements, including having at least one hundred shareholders. Additionally, at least 75% of its assets must be related to real estate, and about 90% of taxable income is required to be distributed among investors.

Investments in REITs

Investing inREITYou don't actually acquire the property itself; instead, you become a shareholder in the company that owns it. These shares can be freely traded on stock exchanges. The purchasing process is similar to buying regular stocks, but there is one important difference: REIT shareholders receive dividends without losing their shares. In contrast, investors holding stocks on the stock market only earn income from reselling their assets.

Source of income

Depending on the typeREITIncome can come from:

• rentals;
• percent on issued loans;
• profits from the sale of real estate.

On average, the yield of REITs ranges from 4% to 7% per year. There are two main types of REITs:

• equity REITwho own properties and earn their primary income from renting them out;
• mortgage REITor mortgage REITs, which invest in mortgage instruments and related assets, profiting from the interest on loans.

Alternative forms of collective investment

If we turn to alternative forms of collective investment, we can mention bonds.

Sources of funding

In the process of implementing its business plans, the company uses three main methods of financing. The first category of financing is bank loans, which account for about 50% of the total required funds. Secondly, the firm utilizes resources generated within the company itself. The third source of funds comes from investments by private investors. To attract the interest of the latter, the company initiates the issuance of fixed-income bonds. The minimum amount for a one-time investment is 3,000 euros, while with the savings program, one can start with 50 euros per month.

Conditions for investors

With a one-time investment, the income will be paid out every three months, and the initially invested money will be returned to you in January 2025. During this time, you will be able to reinvest the received funds. In the accumulation options, payments are made simultaneously with the return of the deferred funds at the end of the contract term. Participants in these programs can:

• suspend my monthly contributions for a period of up to six months;
• Withdraw up to 30% of your deposits after two years from the date of signing the contract.

Return on investment

As for the yield, it fluctuates within the range of6-10%annual returns in euros, depending on the amount you invest. This is an excellent way for those looking to diversify their financial assets, as well as for small investors who want to convert their funds into stable income in euros.

Guarantees and risks

The topics of guarantees and risks in the field of investments require special attention. The concept of a guarantee is always relative. In practice, the guaranteed return specified in the contract is an obligation of a specific company to pay you the stated amounts. However, it is also important to consider the risk aspects that may affect the results of your investments, excluding unforeseen external circumstances.

Important aspects for an investor

The first point to pay attention to is the business model. Investing in real estate should be viewed as a business process, as the goal is to generate profit. An investor must clearly understand how the returns will be generated.

The second aspect that should not be ignored is the management company. The professionalism and experience of this institution play a key role in generating returns on investments. By asking the right questions, you can assess how effectively the company will fulfill its obligations.

The third important criterion is the location of the property. Although it is not the primary requirement, it is also very significant and directly affects the liquidity of your investments.

Analysis before investing

Before making a statement about the desire to invest, it is essential to conduct a detailed analysis of all three key aspects. It is important to adhere to the general rule: it is better to rely on facts and figures, setting emotions aside and engaging in thorough calculations.

Strategy selection

Of course, you can always choose the path of inaction and postpone your investments indefinitely, but it's important to remember that inaction also carries risks. Your money should be working and generating income. Determining how exactly, under what conditions, and where to direct your funds is a task that everyone must solve individually, based on their goals and strategy.

Conclusion

In conclusion of this analysis of property ownership forms, I want to emphasize that investment opportunities go far beyond the traditional approach that is typical for most investors. As you can see, alternative measures such as equity ownership, long-term leasing, and joint participation open up new horizons and ways to generate stable income.

It is important to remember that each of these forms requires detailed analysis and understanding in order to minimize risks and maximize benefits. Special attention should be paid to the legal aspects related to the acquisition and management of such assets. Investing in real estate is not only an opportunity to earn money but also a serious responsibility; it is crucial to realize that successful investments are those built on knowledge and awareness.

Key points

• FlexibilityModern market conditions require adaptability to changes.
• DiversificationDiversifying capital helps reduce risks.
• Legal securityIt's important to understand the legal aspects of investments.

The modern market conditions and economic instability present new challenges for every investor, and it is essential to decide which strategy you want to employ. Today's realities demand flexibility, thoughtfulness, and readiness to adapt to changes. Investors who can diversify their investments, secure a reliable income base, and reduce financial risks will come out ahead.

UltimatelyThe variety of opportunities becomes the key to successful real estate investments. I hope this material helps you explore different approaches, develop your strategies, and take control of your financial independence. It is important not only to view real estate as a source of income but also as a long-term investment that can grow your capital in the future.