Real Estate Matters | Investing or speculating?

Sam Lee

What is the difference between an investor and a speculator? Is there a difference? 

Fundamentally speaking, they are quite similar. They both allocate and deploy capital with the aim of maximizing a return on investment. But from a strategic standpoint, the two are at opposite ends of the spectrum, and have drastically different relationships with the concept of ‘risk’. We’ll explore some of these differences in this article.

 Investing

Generally speaking, investing is the act of allocating money or resources into a business-related venture with the expectation of achieving profit at a future date. An investor is someone who can spot opportunities around him, add value to it and then reap the positive returns at a future date. An example is a man who upon spotting an empty field sees potential in it, purchases it and then turns it into a productive farm or industry. An investors main concern is forced appreciation of the asset, conservative financing and long-term gains. The key idea to take away from investing is that it’s a strategy based on low risk purchases accompanied by added value transformations.

 Speculating

Although every investor speculates from time to time, having a real estate investment strategy purely based on speculation can be highly risky. In real estate, speculation is usually the strategy of buying a property with the purpose of reselling it later at a higher price. The speculator isn’t as concerned in adding value or tapping into a property’s potential as much as relying on the market to deliver returns, and carries little to no level of personal control. This dependence on the appreciation of the general market whether it’s at a local or international level is inherently risky because as we know, the market can be fickle of temperament. 

 Investing and speculating in real estate

It is true that the speculator can make more money than the investor, especially over the short term. However, adopting an investor’s mindset will help you stay in the game longer and ensure that your investments are grounded on added value instead of market fluctuations. In short, instead of purchasing houses and apartments with the hopes that the market will shoot up, the investor takes a longer-term perspective and focuses on building a strong portfolio based on cash flow and added value.

Sam Lee is a marketing manager and property consultant at JML Property.  JML was established in 1994 and offers Investment Property & Homes. It specializes in managing properties for owners and investors, and providing attractive and comfortable homes for tenants.

www.JMLProperty.com

info@JMLProperty.com