Real Estate Investments: How to Build Wealth with Properties

Introduction: Why invest in real estate?

Investing in real estate means buying, owning, managing, or selling properties with the goal of making a profit. Unlike stocks or cryptocurrencies, real estate is a tangible asset: you can see it, touch it, and generate income directly, for example through rentals.

The real estate sector has historically been one of the most solid havens for building wealth, though it also requires knowledge of location, market trends, legislation, and financing.

Basic concepts

Types of real estate investment

Residential: houses, apartments, multi-family buildings.
Commercial: offices, retail spaces, shopping centers.
Industrial: warehouses, storage facilities, logistics centers.
Land: undeveloped plots with potential for development.

Profitability vs. Risk

Rental income: steady monthly cash flow, relatively stable.
Capital appreciation: when the property increases in value and is sold at a higher price.
Risks: vacancies, market fluctuations, maintenance costs, regulatory changes.

Key terminology

Cash flow: monthly money generated by the property after expenses (rent – taxes – maintenance).
Cap rate: capitalization rate, an indicator of annual real estate investment profitability.
Leverage: using financing (mortgage or loan) to buy more properties than your capital alone would allow.

Strategies by investor level

Beginner

Buy a small apartment or house to rent, preferably in high-demand areas.
Research local laws regarding rentals, taxes, and foreign property ownership if applicable.
Start with a small amount or a small loan to learn without overexposing yourself.

Intermediate

Diversify: a mix of residential and commercial properties.
Evaluate real estate funds or REITs (Real Estate Investment Trusts) that allow investing in large portfolios without buying property directly. Investment is made through brokers as if they were regular stocks, and there are also REIT ETFs.
Consider renovations or improvements to increase value and rental income.

Advanced

Participate in large-scale developments: office buildings, commercial or residential complexes.
Use joint ventures (partnerships between two or more parties to develop a real estate project together, sharing risks, costs, and profits) and corporations to finance large projects.
Evaluate international markets and tax regulations, including offshore planning if applicable.
Real estate hedging strategies in volatile markets (e.g., combining rental properties with international REITs).

Advantages and disadvantages

Advantages:

Tangible asset with long-term appreciation.
Passive income stream through rentals.
Relative protection against inflation.

Disadvantages:

Illiquid: selling a property can take months.
Maintenance, taxes, and insurance costs.
Risk of vacancy or devaluation depending on location or economic changes.

Practical tips

Location: key for profitability and appreciation.
Diversification: combine physical properties with REITs or real estate funds.
Know the laws: taxes, lease contracts, urban regulations.
Calculate real cash flow: consider all expenses and risks before investing.

Conclusion

Beginner: start with small residential properties and simple rentals, research laws and cash flows.
Intermediate: diversify, consider commercial properties and REITs, use moderate leverage.
Advanced: invest in large developments, international markets, and tax optimization strategies.

The real estate sector combines stability, passive income, and appreciation potential, but requires planning, research, and patience. Smart investing can be the foundation of a solid, lasting portfolio.

It’s very important to diversify your portfolio to do it well—revisit the oracle to find out what else to invest in and how to do it right.

Glossary

Blue chips: established companies with decades of existence, billions in revenue, product diversification, consistent profits, cash reserves, and if they need financing, banks and markets lend to them because they trust their solvency.

Broker: a platform or financial intermediary that allows you to buy and sell stocks. Some brokers are international (e.g., Interactive Brokers, eToro), and others are local (depending on the country).

Call: a financial contract known as a derivative, whose value depends on a stock. It is the right to buy a stock at a certain price in the future.

Cap rate: capitalization rate, an indicator of the annual return of real estate investment.

Cash flow: monthly cash generated by the property after expenses (rent – taxes – maintenance).

Certificates of Deposit (CDs): "similar to fixed-term deposits, but usually issued by banks or financial institutions in more formal or international markets. They allow investing in local or foreign currencies. They may have fixed or variable interest options, depending on the contract.

Commodities: any basic, homogeneous, tradable product produced in large quantities and traded in global markets. They are used both for direct consumption and for industrial production.

Covered Call: investors holding stocks who sell “Call” options to generate extra income.

Covered bonds: bonds backed by specific assets, lower risk than regular corporate bonds.

ETF: an investment fund traded on the stock exchange like a stock.

Fixed-term deposits: depositing money in a bank for a set period in exchange for a fixed interest rate. At the end of the term, you recover your capital plus interest.

Futures contracts: agreements to buy or sell a certain quantity of an asset at a fixed price in the future.

Hedging: investing in stocks of other types such as precious metals or utilities to balance losses if company stocks fall.

High yield / junk bonds: small companies or those with liquidity problems, high risk, and high return.

Interest-bearing accounts: bank accounts that generate daily or monthly interest on the available balance.

Interest rate swaps: a financial contract between two parties to exchange interest payments on a notional principal. The most common swap is exchanging fixed rates for variable interest rates or futures.

Inverse ETFs: gain value when the index they track goes down.

Joint ventures: partnerships between two or more parties to develop a joint project, sharing risks, costs, and profits.

Leverage: using financing (mortgage or loan) to buy more properties than your capital would allow.

Leveraged ETFs: multiply market movements (2x or 3x), up or down.

Liquidity: in economics, liquidity is the ease with which an asset can be converted into cash without losing value.

Microcaps: very small cryptocurrencies by market cap since they are new or unknown projects. They have the potential to multiply by 100 but also the risk of disappearing overnight.

Mining (Bitcoin): using computers to validate transactions and earn rewards. Miners compete, consume electricity, and receive rewards in BTC.

Mutual Fund: a collective vehicle where multiple people contribute money that a professional manager invests in different financial assets: stocks, bonds, commodities, or a combination of them.

Net Asset Value (NAV): the price of each unit, which fluctuates according to the value of the mutual fund’s assets.

Offshore accounts: accounts opened in another country, used by some investors to access products not available locally or for tax advantages. It’s legal if declared, but each country has its own regulations.

Portfolio: the total set of financial assets (such as stocks, bonds, mutual funds, or real estate) owned by an investor or entity, aimed at achieving financial goals through diversification and risk management.

Put: a financial contract known as a derivative, whose value depends on a stock. It is the right to sell a stock at a certain price in the future.

REITs (Real Estate Investment Trusts): real estate funds that allow investing in large portfolios without directly buying property. They are traded through brokers like regular stocks, and there are even REIT ETFs.

Staking: some blockchains (Ethereum, Cardano, Solana) allow you to “stake” your coins on the network and earn interest. This generates passive income similar to a fixed-term deposit, but with more risk.

Unit share: when you contribute money to a mutual fund, you receive “units” representing your proportional participation in the portfolio.

Validation (Ethereum and other proof of stake): locking large amounts of coins to maintain the network and receive rewards.