What is Real Estate and how does it work?
In this article we will be going over a brief introduction to real estate including how the industry has changed in recent years due to the pandemic, how to buy real estate to live in and how to invest in real estate.
It is common knowledge that real estate is a good investment so it is important to gain the knowledge to see how it can work for yourself and see how it will change in the future.
How the pandemic impacted the real estate market
In recent years the pandemic has altered the real estate market fairly significantly. Initially, following the lockdown that was in most of the world, there was a boom in housing sales.
In particular, residential houses went up and commercial houses went down in demand. This is due to a culture of people working from home and workplaces embracing hybrid working.
As a result of the introduction of government handouts following a lot of people not being able to work, the government introduced a lot more money into circulation.
This means the value of a lot of items have gone up, known as inflation. In order to combat this, banks around the world have increased the interest on loans to reduce spending and lower house prices.
How to buy real estate as a first time buyer
First time buyers are faced with the challenge of coming up with a large deposit to be able to afford to move into a house. This is what holds a lot of buyers back from buying so they continue to rent.
Fortunately, in the UK, there are certain schemes that make this process a bit easier.
Shared ownership scheme
The shared ownership scheme allows buyers to start with very little or no deposit and continue to rent a house. This rent is then used to form a deposit and eventually pay off a mortgage.
While the process means buyers have to take on a lot more debt over the years and have to pay off more than the value of a real estate, it allows them to start the process of home ownership.
Help to buy scheme
The help to buy scheme allows first time buyers to buy real estate with just a 5% deposit. This is because the government helps to match the 20% deposit that is usually required.
This is known as a government loan and the buyer initially starts with paying this government loan back before they then move on to the payment of the mortgage.
Help to buy schemes are only available for new build real estate so the buyer will also get a newer real estate too.
How much deposit do you need?
The standard amount of deposit that you’d need to buy a home is 20%. This means you’ll have an 80% Loan to Value (LTV) ratio and this is typical of most residential mortgages.
How to invest in real estate
To begin investing in real estate to produce a return rather than buy for somewhere to live in, you will need to find someone who is actively investing and join them.
Or you will have to find a lender or a bank and be able to convince them that the potential rental income – not your own salary, is able to be used to pay off the mortgage loan.
Buy to let mortgage
A buy to let mortgage is a mortgage taken out by investors who want to use the mortgage as a real estate investment business model rather than a way to buy a home to own and live in.
Buy to let mortgages are usually interest only which means you pay off the interest over time through a fixed period (usually 2 to 5 years) and don’t actually pay off the equity in the loan.
When the fixed term is up, the buyer will be able to remortgage to begin paying off the mortgage equity or sell the real estate on.
A REIT, or a Real Estate Investment Trust, is a type of investment vehicle that allows individuals to invest in real estate without actually owning physical real estate.
REITs are similar to mutual funds, in that they pool money from multiple investors and use the funds to purchase a portfolio of real estate assets. The income generated from these assets is then distributed to the investors in the form of dividends.
What will real estate look like in the future?
The main changes coming in real estate are the ways that real estate is predicted to go up in value and also how technology is set to take over and become something that automates real estate management.
Real estate prices
One of the primary drivers of the real estate industry is the demand for housing. Residential real estate is the most familiar aspect of the industry to many people, and it is the most common way that individuals interact with the market.
Residential real estate includes single-family homes, townhouses, condos, and apartment buildings. The market for residential real estate is influenced by factors such as population growth, interest rates, and economic conditions.
The location of a real estate is also a significant factor in determining its value, as well as the amenities and features that it offers.
Real estate technology
An example of real estate technology is real estate management software like Lofti. This type of software automates the process of managing tenants allowing landlords to have communication with tenants all inside one app.
On top of this, the technology helps predict market trends, keep up with the maintenance requests of tenants and also stores all of the legal documents associated with the piece of real estate in one place.
Real Estate Content Writer at https://lofti.co/
To begin my career, I focused on creating content related to the real estate market. Currently, I conduct thorough research on a daily basis to produce relevant material for online and offline platforms, with the aim of ensuring that landlords have a seamless experience while using the Lofti suite.