The Internet is teeming with articles about investing and lists of words that every investor should know. But if you are interested in investing in real estate, you do not need a thick dictionary of investment terms to hand. To understand the basics, our today's article should suffice.
An investment portfolio is the sum of all your investments. Whether it's real estate, gold or stocks. Portfolios are divided into conservative, progressive and dynamic. What's the difference? The conservative one is quite safe, investments in such a portolio should just cover inflation. A progressive portfolio is such a golden mean, and dynamic portfolios mean riskier investing, but also higher profit. You can also assemble your portfolio from real estate investments, for example in different regions. It's up to you what strategy you try. But think about diversification!
What is diversification and why should you care?
Often inflected, keyword. Investing smartly does not mean betting all your savings on one horse. It is best to divide the money between different investments. If you enjoy the profits of investing in real estate, explore in which locations they are highest, but also invest elsewhere. Surely you still remember how the operation of accommodation facilities was banned during the first lockdown. A large part of the 14,000 Prague apartments rented on Airbnb diluted the housing offer and slashed the price of rents in Prague by thousands. Those who bet only on Prague experienced difficult times. Those who had investments in other cities where rent did not get cheaper could applaud. This is called real estate portfolio diversification in practice!
Risk and its hedging
Even if there is some risk associated with every investment, investing in real estate is perceived as safe in the long term. In the portfolio of almost every millionaire you will discover some interesting buildings. Why not – real estate offers a stable rental income, unless something dramatic is on the market. The real estate market fluctuated significantly, for example, during the crisis in 2008-2009. Since then, however, prices have risen again.
And what does hedging mean? It's nice to imagine this in the context of other investments. When a bond or poorly selected stock collapses, it is possible that you will end up with zero. For real estate, it is not so hot, nor do major crises usually cause a drastic drop in prices. If you do, you can always sell the property, even at a loss. But your money is still secured by something real, material.
The investment horizon is the time for which you have planned your investment. It can be a year or two, but also ten years. At Investown, we work with an investment horizon of 12-60 months.
Return on investment and appreciation
Return of Investment, or RETURN on Investment, is a number that indicates the net profit or net loss relative to the initial investment. The result is always a percentage by which you can clearly see whether the investment is paying off or not (the calculation is based in minus). How to calculate? Put the following information in the formula:
Return on investment = ((net profit – initial investment) / initial investment) * 100 [%]
The Investown platform offers real estate investment with an appreciation of at least 7% per year. This means that if you invest, for example, 5,000 on a one-off basis, you have CZK 5,700 at the end of the investment period (which is, say, 2 years). In the case of an investment worth CZK 50,000, you have the amount of CZK 57,000 and so on. In addition, if you reinvest the profits from the investments that go to your Investown wallet every month in other investment opportunities, you can far exceed these amounts.
And how to calculate the yield for long-term investments? There, use a slightly more complex calculation of the IRR (internal rate of return), which we showed in our Pater of Responsible (Micro)Investing.
We come across inflation in almost every one of our articles, because it is related to investing. According to the Czech National Bank, the average inflation rate in 2021 was 3.8%, and for the whole of 2022 the CNB predicts 13.1%. This year's unusually high inflation rate is due to events in the world, or the war in Ukraine. It is expected to calm down soon and return to normal values. In 2023, inflation is set to fall to 4.1%.
The high liquidity of the investment means that you can easily sell it on the market , but also buy it easily. We've touched on this topic before, when we imagined different types of investing in real estate. Some investments can be monetized smoothly, others are not so easy and fast. And you have to take this into account when planning your investment. Think about whether you can save money for some time or you will need it quickly in your hand. Liquidity is high at Investown. During the investment period, it is possible to offer the investment to other users and monetize it.
Real Estate Investment Trust, the so-called REIT, is a joint-stock company that invests in real estate. You can invest in it by buying its shares. These companies are popular mainly in the U.S. and always manage their own real estate portfolio. With the purchase of REIT shares, you can look forward to regular dividend payments, but you will not miss trading on the stock market. But be prepared for the fact that your investment will be exposed to fluctuations in the stock market.
We understand microinvestment as an opportunity to fully invest even with small amounts in the order of hundreds to thousands of crowns. For example, in Investown we are close to microinvesting, you can invest with us from AS LITTLE AS CZK 500 per month. You can choose from a range of investment opportunities in different cities and diversify your real estate portfolio. Liquidity is high with us, because you can sell your investment at any time and get the money back into your account. You choose the investment horizon according to which property you are investing in, but you can also shorten it according to yourself if you sell the investment earlier. With earnings starting at an attractive 7% per year , you will protect your money from inflation and get closer to your financial goals.