There are many different ways in which an individual may choose to invest in real estate. For instance, you could choose to buy a duplex as a rental property, buy a commercial property or choose to put money into a REIT. However, one way to take advantage of the current market may be to invest in real estate options.
Put and Call Options Real Estate Explained
To understand how to successfully invest in real estate options, you have to know what put and call options are. A call option says that you believe an asset’s value is going to go higher, and your goal is to buy the asset at a discount. A put option means that you believe that the price is going to fall, which means that you sell the asset and hope to buy it back at a lower price later.
How Do Property Options Work?
With a straight property option, a buyer has the right to buy a property for a predetermined price for a predetermined amount of time. For instance, a seller may say that a buyer has until the end of 2017 to buy his home for $100,000 regardless of what the price is at the end of the option.
In most cases, the buyer has no obligation to buy the home at any point during the option period. Since the seller has an obligation to hold the house until the option expires, he or she may charge an option fee. If the option expires without being exercised, the seller gets to keep the fee and the house.
Therefore, the buyer wants the property to appreciate above the option price while the seller wants it to remain at or below the option price at expiration. Most property options are straight call options because they are backed by an asset that the seller already has and can liquidate on demand.
Real Estate Market Situation
Much of the world is still trying to get out of a financial rut caused by the Great Recession in 2008. While some parts of the world like the United States have seen some growth, Japan as well as nations in the European Union have turned to negative interest rates to spur the economy.
If you want to put your money into real estate, it may be best to buy commercial properties in developed countries like Britain, Canada and the United States. China is another part of the world where the real estate market is performing steadily if not as well as it has in the past.
Overseas investors should be aware of United States policies going forward as it relates to trade and immigration. They should also keep an eye on the price of oil as it can effect the prices of other materials. If the cost of materials are higher, the price to build a house may be higher, which could cut into potential returns on a real estate investment.
Look up in Australia’s Market
The Australia’s real estate market trend over the past 40 years has been a positive one. Economists generally agree that residential property values have increased by about 3 percent per year since the 1970s. However, it has also raised questions as to whether or not the nation is in the midst of a housing bubble.
Housing bubbles occur when prices rise faster than wages, which may result in fewer buyers on the market. This could cause property values to tumble and cause homeowners to become underwater on their home loans. While the losses are just on paper until a house is sold, homeowners may opt for bankruptcy instead of making payments.
Therefore, it may be in your best interest to buy options instead of buying properties themselves. A property options Australia broker may be able to help you find the best options to purchase at the lowest prices. In most cases, buying a call or put option is an inexpensive way to acquire the rights to a property without any obligation to buy it.
Investors in Australian real estate will want to keep an eye on interest rates over the next year. The central bank currently has set rates at 1.5 percent, which is down from last year when it was 2 percent. Further cuts could reduce borrowing costs and make it more appealing to buy real estate.
The Bottom Line
Whenever you invest in real estate, you need to focus on market conditions in a specific location. When the real estate market in a country may be going up, there may be cities or neighbourhoods where values are going down. In times when real estate prices are going down overall in a nation, there may be cities or pockets where prices are flat or rising.
As an investor, it is important to know how and when to buy an option or otherwise put your money into the market. If you aren’t sure how an interest rate cut or an increase in political instability may influence your investment decision, take the time to ask a financial adviser or someone else who does know.
While there is no guarantee as to how a market will move over a given period of time, those looking to invest in Australia may want to stick to homes as opposed to units. Home prices are projected to rise in Sydney, Melbourne and Brisbane between now and 2020. Therefore, those may be the cities worth spending money in for those looking for profits in the medium to long-term.