By Iacovos Iacovides, APC Sports
Former US president (1933-1945) Franklin D. Roosevelt (FDR) said ‘real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world’. This statement is frequently recast and repackaged by people familiar with real estate. This article gives a brief overview of the real estate world in order to point out how it might be beneficial to athletes and how this line of investment might be ideal for them in terms of securing their long-term financial well-being.
FDR is probably right. Historically, real estate investments have proven to be the safest asset class and the reason is simple to understand. Regardless of how technology advances and how much certain industries, products and services become obsolete, less centralized or oversaturated, human beings will always require land to live in, work on, farm and so on. It is, in other words, a safe bet – to the extent that safe bets exist.
When it comes to how the market operates, there are essentially two routes: you either go solo or you become part of some sort of investment company; for example, real estate investment groups (REIGs) or real estate investment trusts (REIT). Therefore, I should mention that this article is mostly geared towards the first class of people.
So how do you make money from real estate? Firstly, the prospective investor needs to decide what it is they want to do with their property. Are they going to rent it out for cash? Or, are they going to sell when the price rises to a specific level (by looking at the Return on Investment)? In their extreme form, these investors are called “flippers”. Or maybe, the said athlete is thinking about life after sport as a real estate agent in which case you can make money (through commissions) by being the buffer between buyer and seller. There are therefore, many ways in which someone can engage and profit from the real estate market both in the short and the long run.
The next thing we ought to look at are the factors that influence the real estate market as a whole – which is why location, location, location is not among them. Firstly, we have interest rates; when they are low, borrowing is easier and repayments are milder which means that conditions to take out a loan are favourable. Nonetheless, when interest rates are low then real estate prices are likely to go up due to the imminent rise in demand. People with sizable cash flow streams, such as athletes, might want to take advantage of the market when prices are low (and interest rates high) in order to cash in when prices rise. Of course, that also depends on the type of investor you are – selling versus renting out.
The Real Estate market tends to align with broader economic conditions; therefore, a second factor is the economy. By looking at standard economic indicators such as GDP and employment levels, an investor can relatively accurately assess the real estate market as well. Put simply, the market is likely to follow both a sluggish and a booming economy. Demographics are also important. Population growth, migration levels and whether the population is ageing or not, are likely to influence the demand, supply and prices of the real estate market.
An often-overlooked major factor are state practices and government policies. This is highly contingent upon location. For example, following the Great Recession the US federal government gave several incentives to buyers and investors in an attempt to ignite the market. Other countries in the European Union have similar policies in place for first-time homebuyers for instance. Prospective investors need to be familiar with local legislation, incentives and subsidies when considering purchases in the said area/ city/ country in order to minimise costs and maximise revenues.
In short, in order to get familiar with the real estate market you need to understand all the factors and ingredients that we described above. That is the first step to being able to participate in one of the world’s oldest markets. That will equip you with the ability to do your own due diligence and research, should you decide that the world of real estate is for you.
For further information on the real estate market and how you can benefit from it, you may contact us at [email protected].
