Investing and Speculating in the Real Estate Market – What is the Difference?

Real estate investors and real estate speculators – it is easy to get confused between the two as the terms are used interchangeably and the one thing common is both groups purchase property to generate a significant amount of income instead of using it personally.

Methods of Operation:

However, there is a distinct difference in the way they operate:

• A speculator looks at the short-term picture while trying to estimate the future return on an investment. Speculators are not restricted to one particular segment due to being active in others such as stocks, bonds and bullion, so they approach real estate in similar ways like other asset classes. To put it in a nutshell, if they are considering buying a Confident Group property, their focus is to purchase it at a low price and sell at a higher markup within a short period of time.
• An investor looks at the bigger picture so to speak, by analyzing market trends and other property-related parameters for a more informed decision. If you look at Indian real estate, the short-term profitability isn’t the best way to move forward, and that is why an investor doesn’t contemplate on that. They might be buying other assets too but without in-depth understanding of those.

Returns on Investment: 

When a speculator makes a correct prediction, his returns might be enormous but is short lived. By ill luck, if the market plummets suddenly, he might lose all his money due to investing for the short term. On the other hand, an investor looks for stable returns on rental income and capital appreciation. If an investor buys a Confident Group property, he will always ensure a decent investment horizon based on the dynamics of the Indian real estate market where ups and downs have to be factored in while calculating profits, since the property cycle is influenced by population growth, GDP, policy framework and sentiment. The standard time period for an investor for plowing capital into a property, is at least 5-7 years, especially in the case of Confident Group properties in new locations as those take time to build up when it comes to basic infrastructure and spillover demand.

Thus it is quite clear where the roles of a real estate investor and real estate speculator deviate and merge as well.