The REITs is affordable for all the type of investor whether individual or companies. It only required small capital outlay to invest in this type of investment. Lastly, REITs is providing the professional management for every property that the company manage. The fund that pool to the trusted company is managed by the expertise in their area. The money will be manage by manager that already expert in the REITs investments.
To make profit, the investors should think like business owners instead of thinking like a homeowner and paying more than the property is worth for. If you fall in love with a property, then you may fail to make the right decision, and in turn, you may lose the opportunity of great income. It is advisable that you do enough research to determine the right value of the properties. 7. Forgetting time and money rule The investors need to follow a time and money rule while investing in real estates.
The disadvantage of owning a variety of assets is that investors will never be able to fully capture the gains and returns. Diversification has a net effect that enables slow and careful performances and smoother returns, never shifting upward or downward too quickly. The reduced volatility that comes from portfolio diversification helps ease financial distress in investors. The risk of diversification While diversification is a simple way for investors to reduce portfolio risk, it is unable to eliminate risk entirely. There are two broad types of investment risk: Market Risks.
They have found through empirical evidence that both show a positive relation. Trends have shown that an increase in debt financing leads to an increase in leasing. This act financially bad for private firms who run on lease on is a stakeholder of it. The firm has more cash outflows since it is paying for the debt and the lease. “This paper demonstrates that, because leasing is a mechanism for selling excess tax deductions, it can motivate the lessee firm to increase the proportion of debt in its capital structure relative to an otherwise identical firm that does not use leasing.
The followings are also needs to be considered: i. Interest Rate Risk: It is a risk in which there is a probability that due to the rise in interest rates fixed rate debt instrument will decline in value. ii. Business Risk: A risk in which the company needs to consider that whether the risk in the finance is bearable for the company or the company should
All the assumptions are discussed below: 1. All the investors in the market can borrow or lend any amount of money at risk free rate of return which is similar for all investors and does not depend on the amount borrowed or lend. 2. All investors take a position on the efficient frontier, where all investments gives highest expected return for a specific level of risk or lowest risk for a specific level of expected return. Investors are risk averse individuals whose goal is maximizing the expected utility of their assets and aim only on their return (mean) and the related risk (variance).
So, too much pressure from the institutional investors and mutual funds on the managers leads to minor investment in long-term projects. Despite meeting the short-term goals, which the investors want, growth can be affected due to less investment in long-term projects. The institutional investors are focusing on the short run rather than the long run, because they want cash returns as soon as possible. This is easier to achieve in the short run than in the long
A high return on equity is at the same time a good indicator for a firm’s economic success, which again attracts investors. Paradoxically, firms thus deliberately increase their debt finance to raise their profitability. The leverage effect remains positive, as long as the cost of debt is smaller than the overall return on investment.
Every business is subject to the risk of unforeseeable changes in business environment. Volatility in exchange rates affects business growth and can be significant. An exporter, importer or a corporate having foreign currency loans, is directly exposed to exchange rate fluctuation. A firm could also have significant risk imposed by indirect exposure, such as local purchases of imported goods via agencies, Forex loans on books of subsidiary etc. It is possible to mitigate these risks by using suitable hedging derivatives instruments.