Final answer:
Investing in real estate can be challenging due to market conditions and property management complexities. Real estate capital markets facilitate investments using instruments like REITs, MBS, and CDOs and promote diversification through mutual and index funds. Investors consider return potential, market trends, liquidity, and risk mitigation as crucial factors.
Step-by-step explanation:
The hardest thing about investing in real estate often includes understanding market conditions, securing financing, managing properties, and dealing with the legal complexities associated with real estate transactions. Real estate capital markets address these difficulties by providing a platform where investors can access various financial instruments to raise capital, spread risk, and increase liquidity. Main instruments used in real estate capital markets include Real Estate Investment Trusts (REITs), Mortgage-Backed Securities (MBS), and Collateralized Debt Obligations (CDOs), among others.
Investors also need to consider analyzing risks, including market volatility, interest rate risks, and the creditworthiness of tenants. Diversification is crucial in mitigating these risks, and investors may do so by investing in mutual funds or index funds, which allow for investment across a broad range of assets.
Lastly, the considerations important to investors in the financial market include analyzing potential return on investment, understanding market trends, assessing liquidity, and mitigating risk. Raising financial capital for a start-up can be done via venture capital, angel investors, or through the issuance of stocks and bonds. It's not always feasible for firms to use their own profits for financial capital expansion due to the need for larger sums of money and the desire to preserve cash for operations or expansion. Well-established firms often get loans more easily because they have a proven track record and are therefore seen as lower-risk borrowers. A bond represents a loan made by an investor to a borrower, typically corporate or governmental.