When it comes to investing opportunities for HNIs, the golden rule is ‘don’t put all your eggs in one basket’.
Diversification is the key to a successful investment portfolio, and real estate asset management provides a unique gateway to achieve just that. Beyond traditional stocks and bonds, real estate offers a tangible, inflation-resistant asset with the potential for capital appreciation and consistent cash flow.
Diversification. Stability. Growth. That’s why real estate asset management is worth the investment.
As real estate markets tend to operate independently from the stock market, investors enjoy a robust shield against market volatility, thereby reducing overall portfolio risk and long-term wealth creation. India is among the top 10 price-appreciating housing markets internationally. (1) As the industry thrives and evolves, staying well-versed in the associated terminologies will be key in this thriving sector.
12 Terms about REAM
1. Real Estate Asset Management
It's simply taking care of your property to make it more valuable. This involves planning and managing properties, dealing with finances, and making the right decisions to increase their worth.
2. Real Estate Investment
This means buying property with the aim of making money from it. People invest in real estate to earn income through rent or by selling it later at a higher price.
3. Cash Flow
When you own a property, you get rent from tenants and cash flow is the money you have left after you pay all the expenses related to the property, like maintenance, mortgage, and taxes.
4. Capital Appreciation
Over time, the value of your property may go up due to various factors. When this happens, it's called capital appreciation, and it means your property is worth more than what you originally paid for it.
5. Cap Rate (Capitalization Rate)
It's a way to figure out how profitable an investment property is. Cap rate compares the income the property generates to its current value, helping you understand its potential return on investment.
6. REIT (Real Estate Investment Trust)
Think of a REIT as a company that owns and manages different properties. It is a team of people who pool their money to buy and run various real estates properties like apartments or shopping centers. By being part of this team, you can earn a share of the profits from these properties without the need to directly own and manage them.
Instead of putting all your money into one property or market, diversification means spreading your investments across different properties or locations. It helps reduce risks because if one investment performs poorly, others may do well.
This is how easy it is to turn your property or investment into cash quickly without losing much value. Some investments are more liquid, like stocks that can be easily sold, while real estate might take longer to sell.
9. Gross Operating Income (GOI)
If you add up all the money your property generates before taking out any expenses like taxes or maintenance costs, then the total income is the gross operating income.
10. Net Operating Income (NOI)
After calculating the gross operating income, you subtract all the expenses related to the property except debt and taxes. The money left is called net operating income.
11. Debt Service Coverage Ratio (DSCR)
This is a number that lenders use to see if a property can cover its debt payments. They look at how much money the property makes (NOI) and compare it to the amount needed to pay debts.
12. Alternate Investment Fund (AIF)
It's like a pool of money collected from different investors to invest in things other than typical investments like stocks or bonds. These funds invest in alternative assets, like real estate, to potentially earn higher returns.
Real Estate Asset Management vs Property Management
A concept that is easily mistaken in the industry is the difference between real estate asset management and property management.
Real estate asset management companies are involved in overseeing the strategic planning, acquisition, and disposition of properties to maximise returns for investors. It’s like being the owner of a restaurant. You focus on the big picture like choosing the right location for the restaurant, the cuisine, and making sure the restaurant is profitable in the long run.
On the other hand, property management is like being a restaurant manager. You take care of the day-to-day operations to ensure the restaurant runs smoothly. In the case of the property manager, they will do the daily operations of individual properties such as tenant relations, rent collection, and maintenance.
Asset management looks at the big picture of a real estate investment, while property management handles the nitty-gritty to ensure smooth property functioning
Real estate asset management and investment offer a compelling opportunity for HNIs seeking diversification. Acquiring a solid understanding of industry terminologies is paramount. Investors should take the initiative, explore the vast potential, and seek guidance from property portfolio managers. This is how they can proactively build wealth, secure their future, and tap into the prosperity offered by this thriving industry.