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Why Real Estate?
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Real estate is an investment tool which has many alternatives. There are treasury bonds, company shares, bank deposits and many other instruments. In this case, what makes the real estate investment so special among those many options?
In order to make investments to the financial instruments “in most of the cases” you have to have 100 % of the investment total.
For example, if you purchase company shares for €100.000 and in one year if you are able to obtain € 125.000 value, that means you have made 25 % profit from your investment.
On the other hand, if €75.000 of a commercial real estate investment that worth €100.000 is provided by a financial institution, the amount you have to deposit will be €25.000. If your real estate’s value increases by 25 % your profit will be 100 %! This is called as lever power.
In general, the process of purchasing real estate in Turkey is different from the process in western countries. While in our country almost all financing for the real estate investment is provided from equity capital (cash), according to the statistics in western countries 70 % of construction investment is provided by corporate capital. In Turkey, it is observed that this ratio remain at 5 % level.
At the same time, while in Turkey about 3 % of those investments are financed via capital market means, the same ratio is 60 % in the US. The main reason of this difference is the inability to use long term credits because of high inflation and interest rates which have been experienced for years.
In developed western countries the real estate investment sector, which is the leader among sectors which make contribution to the economic development, has become popular among the investors upon fall of interest rates.
Although in Turkey real estate prices have the trend of rising the yearly rental income remains at the level about 5% and this indicates how important to make purchase at the right time and at the right prices. Real estate prices, on a yearly base, increase 5-10 % in developed countries and 10-20 % in developing countries.
Commercial real estates prices mostly increase more than residences’ prices.
In the long term the most logical choice is commercial real estate investment which has valued tenants. For this purpose you need to make investment to the right real estate at the right time by using appropriate financing model.
Why Commercial Real Estate Investment instead of Residence Real Estate Investment?
*Compared to the residences commercial real estate bring higher rental income. Yearly 6%-12%.
*In the long term the prices of commercial real estates increases more than others.
*In commercial real estates the tenants (companies) pay all expenses related to rent. Tenants, compared to the residences, take better care of the real estate they rent, because those areas reflect their companies.
*In commercial real estate your ownership rights, compared to the residences, are far better protected.
*Although commercial real estate rents have long terms, 5-10 years rents are common.
*In financial crises commercial real estates are less fragile. For a company the last thing it can give up is its office and shop!
*And most importantly; commercial real estate bring higher equity profit by using less equity.
In general, people who make investment to commercial real estates have been limited with real estate investment professionals.
But you do not need to be a real estate investment professional in order to experience the income of a commercial real estate investment. People who have experienced profit of residence investment can far better evaluate the value of commercial real estates like shop, office and plaza
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