Real Estate Investment is now treated as a major case of capital budgeting by using state-of-the-art investment analysis which incorporates the future stream of income it may generate and the associated risk adjustments. It has been the highlight of the investment literature since the 1970’s when investment theorists extended techniques such as probability, time value of money and utility into its analysis.
Real estates are basically defined as immovable property such as land and everything permanently attached to it like buildings. Real estate property as opposed to personal or movable property is characterized by the right to transfer the title to the land whereas title to personal property can be retained. The investment in real estate essentially depends on the risks associated with it, that is to say, even if the venture succeeds when the future stream of income will accrue to the investor and the alternative investment opportunities.
Real estate investment can be attractive if viewed as a business opportunity; it can generate rental income, using it as collateral to secure a loan for a business venture, to offset otherwise taxable income through cash savings on tax-deductible interest rate losses, or simply from the profits garnered from its resale. Notable, in this context is the gains reaped by real estate speculators who trade in real estate futures.
Real estate investing involves the purchase, ownership, management, and/or sale of real estate for profit. Improvement of real property as part of a real estate investment strategy is generally considered to be a sub-specialty of real estate investing called real estate development.( An asset is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future return or interest from it.
The word originates in the Latin "vestis", meaning garment, and refers to the act of putting things into others' pockets. Real estate is an expensive, non-liquid asset,( In business and accounting, an asset is defined as a probable future economic benefit obtained or controlled by a particular entity as a result of a past transaction or event.) and therefore real estate investment activity is capital intensive, risky, and cash flow dependent. The primary mode of business failure for real estate investors is an inability to remain cash solvent. Common examples of real estate investment are individuals owning multiple pieces of real estates one of which is his primary residence and others are occupied by tenants from where the rental income accrues.
Real estate investment is also associated with appreciation in the value of property thereby having the potential for capital gains. Tax implications differ for real estate investment and residential real estates. Real estate investment is long term in nature and investment professionals routinely maintain that ones investment portfolio should have at least 5%-20% invested in real estate.
A Real Estate Investment Trust is a corporation or body investing in real estate that has the property to reduce or eliminate corporate income taxes. A Real Estate Investment Trust (REIT) is a corporation or body investing in real estate that has the property to reduce or eliminate corporate income taxes.