Knowing the Opportunistic Costs of Investing in Real Estate
While most investors are involved in real estate investment because they understand opportunities to make money through leverage and capital growth or high yields, I still see and hear many people do not
So, what does the opportunity cost mean?
According to the Encyclopedia, "opportunity cost is a term used in economics, meaning the cost (and the benefit from that opportunity) in the case of an opportunity being abandoned, or the most valuable For example, if a city decides to build a hospital on the open space it has, the opportunity cost is something else that the land and construction funds might do, and the city has abandoned the idea of building a sport on the land Center, or parking lot, or the ability to sell land to reduce city debt, etc. "
So in real estate investing, if the investor decides to invest £ 50,000 in a real estate such as Wales, the opportunity cost will be He can invest in Spain, Ireland or Dubai, or, similarly, if the investor decides to keep the equity 50k in a property, the opportunity cost is the value he / she can choose to invest in the money and the result
Will depend on your specific strategy – and many people are less concerned about the opportunity cost, they are simply keen to buy 1-2 properties that can hold 15-25 years as a pension. It is good if this is your strategy – but for me too broad a strategy that pose a risk that is
For me, I have always had a philosophy of right or wrong and I I should always work hard for my money. What does it mean? As long as I feel that my money has made a significant return, the rate of return may drop compared to other possibilities, and then I will look to realize my profits and invest elsewhere, ie when I feel the opportunities elsewhere are greater than the current
This is similar to other investment types such as buying stocks and stocks – depending on the price you pay, and You sell the price to earn / lose your money – although clearly with the property is a good chance of earning a normal income – if you insist on 15-25 years you should make money but are likely to be on several fears of the way!
To become a successful investor, you must know when to enter the market and leave the market. And the best people buy low and sell high!
I will give an example – while the purchase plan now has some great sticks in the UK – I have been successful in the past few years – but the key is to have a clear strategy.
For example, by doing all my due diligence, I have managed to buy a house at the right price in the right place, but then complete the sale within a year I think this is the period during which I will see the maximum rate of return And opportunities elsewhere in the next 3 years will be greater
So, by the numbers, I just sold one and I bought the plan last 12 months to complete. I bought the price has been lower than the market value of 10 pounds, based on my research, in a field that did not buy to allow competition. This deposit is only £ 5. Upon completion, I gave another £ 28k deposit – so tied my $ 33,000 in my own money. This area has no stamp duty
Then I finished the market and now even in this area things are slowing and I just sold a £ 23k profit. So I tied £ 5K for 1 year, another £ 28K for 6 months, back to £ 56K
Why I Sell? I consider refinancing it?
My first choice is to refinance and rent, but the rent will not pile up. So while the rent will pile up at my price, I pay the property, I will have 56k of the shares sitting do not do much for me. So I do not expect huge capital growth in the region over the next three to five years and the yield is not attractive enough for me, so I'd better give up the equity and find another investment – that is, I think there is a better chance of I've spent my £ 56,000 to generate more money
It is now clear that when researching the future is risky and speculative elements, there is no definitive answer – so you have to predict that as well as you You can compare the current available data, ie how you can forecast interest rates, buy / sell costs, supply and demand, employment, the overall economy and market sentiment for the next period in the markets / areas where you invest / seek to invest.
Although the opportunity cost is difficult to quantify, its effects are pervasive and real at the individual level. The principle behind the economic concept of opportunity cost applies to all decisions, not just economic decisions, such as when Steven Gerrard decides to stay at Liverpool last summer, his home club and his captain, the opportunity cost is what he can achieve If he moved to Chelsea. It would be interesting to see if he decided this summer – he may now feel the opportunity cost too much to refuse.
Hope this makes sense and remember to consider the opportunity cost when making the next investment decision.