What Is The Difference Between A Real Estate Investor And A Speculator?
There is a fine distinction between real estate investment and speculation, though many do not know the difference. But these terms are often used interchangeably, because both investors and speculators are not end-users. They buy and sell real estate assets to make profits. Even experts do not always understand the difference between both.
To understand the difference between real estate investors and speculators, it is important to have a look at their methods of operation.
How are investors and speculators different?
- Speculators attempt to predict the future returns on their investments, and tend to be focused on short-term profits.
- They are not very informed about how real estate markets work in the neighbourhood they invest in.
- They tend to use the same approach for all asset classes, because they also tend to invest in stocks, bonds and bullion.
- Their approach boils down to buying low and selling high in a very short period.
- Investors tend to carefully analyze real estate markets, trends and other relevant factors.
- They tend to make informed, long-term decisions.
- They are not obsessed with short-term profits. Investing in real estate for short-term profits do not make much sense in the Indian context anyway.
- They also tend to invest into other asset classes, but they know that different asset classes are different.
How do returns differ?
- They may make large profits when they are lucky, but such luck does not last.
- Vicissitudes in the market can have a huge impact on speculators because they are not around for long.
- They do not earn much as rental income, because they buy and sell quickly.
- Good investors can expect healthy, steady returns as capital appreciation and rental income.
- They tend to invest mostly in a certain asset class, study the changes in the market and have a longer time horizon in mind.
- As Indian real estate markets are quite volatile, prudent investors are more likely to benefit from real estate investment.
Factors that work to the advantage of real estate investors
- Population growth, economic growth, policy framework and market conditions have a huge impact on real estate markets. Investors who consider such factors have greater prospects of success.
- Investors are also prepared to handle periods of booms and busts.
- As vicissitudes are common, you must be willing to remain invested in the market for at least 5-7 years.
- Anticipating higher demand, investors usually buy property at a cheaper price in remote areas. So, it is important to have a longer time horizon in mind.
- It takes time for infrastructure in an area to develop, and for real estate prices to appreciate.
- Investors are less likely to lose money during a bust, because they study the market well.
- They are more willing to wait before they take an important decision.