Derivatives

In addition to physical property, investors may also choose to invest in real estate by means of Derivatives. A Derivative is essentially a share for real estate property. The prices of these particular shares are actually determined by the variations in value of an underlying asset. The changing economy, however, means that the prices of certain assets needed by a real estate investor are likely to change. Real estate investors can invest in Derivatives to pay for their assets at a strike price within a certain period of time, regardless if the price of that asset experiences future increases within a predetermined time frame. For example, an asset needed by a real estate investor may be around $50 per share. A real estate investor may obtain a Derivative at that strike price for a specified time period of six months. If the price of that asset were to increase within those six months, the real estate investor would be protected and secured at the initial price of $50/share. A Derivative acts as a sort of price security for investments made by real estate investors. Fundamentally, a premium must be paid out, however, Derivatives often end up saving investors a great deal of money in the long run. When used as a financial contract, a Derivative involves two parties that receive mutually exclusive benefits; The first party can use Derivatives to reduce their risks, while the second party uses Derivatives to receive potentially impressive returns offered by the first party.