Investing in real estate is not a groundbreaking or new thing. It is a true, tested and legitimate business that can certainly earn you a great wealth if you play it right. Like any other investment, real estate investing also demands understanding of the basic concepts on your part. When you learn it right, buying property, generating rent and avoiding bankruptcy become as easy as playing monopoly. This article will help you understand the real estate investing basics in the simplest way.
❖ Getting Started In Real estate Investing
Generally, the new investors are more comfortable with real estate investing. It is simple to understand and offers plentiful opportunities to earn good fortune. But before you invest your money into this wealth-building vehicle, it is important that you find out the right properties and understand the real estate community well. Make sure that there is no scope left for making mistakes because if you make them, you will lose everything that you have ever had.
❖ Why Invest in Real Estate?
There are many reasons why real estate investing is considered very fruitful. Here are some of the ways you can benefit from this investment:
➣ Appreciation: Real estate appreciation refers to increase in the value of a property over time. When the land around your property becomes busier or scarcer or if the real estate market changes, your property becomes more valuable. But it is completely unwise to invest in real estate to make money only on the basis of appreciation.
➣ Tax Benefits: You can deduct the operating costs of your property from your income. These costs include:
Repairs and maintenance
Interest on loan
Rates and taxes
Travel to and from your property in order to facilitate repairs
These deductions can be claimed on your tax return.
➣ Rental Income: Rental income that you get through your property can be a means of positive cash flow. You can rent your property for a specific period of time. When this rental income covers all the expenses like insurance, taxes, mortgage, fees with nothing left over, you become break-even. Positive cash flow is when the rent exceeds the expenses. You can also earn through rent appreciation that is increasing your rental income every year.
➣ Improvement: You can earn better price and more profit from your property by improving its functionality and appearance. Keep upgrading your property from time to time to help retain its value.
➣ Leverage: You can use Other People’s Money (OPM) to invest in real estate. You get enough time to pay back the mortgage and you can also structure your deal in such a way that no money is invested from your pocket but the benefits are all yours.
❖ Types of Real Estate Investments
After understanding how beneficial real estate investment is, let’s find out how many ways are there to invest in it:
➣ Commercial Real Estate Investing: These are mainly the office buildings. You can lease out the individual offices in the building to small businesses or companies and collect rent.
➣ Residential Real Estate Investing: These buildings include houses, townhouses, apartment buildings and vacation houses that are rented by a family to live.
➣ Retail Real Estate Investing: Strip malls, shopping malls and other retail stores are included in these types of buildings. Along with getting the base rent on these properties, you can also collect a percentage of sales from the tenant store that is used in maintenance of the property.
➣ Industrial Real Estate Investing: These are the properties that generate sales from the customers, who use the facility for temporary use, for example – car washes and storage units.
➣ Real Estate Investment Trusts (REITs): You can invest in real estate through these trusts also. They own a portfolio of underlying real estate and trade like stocks.
❖ Models of Real Estate Investment
There are 3 different ways through which you can generate money for your real estate investment. You can rent or lease your property to a tenant or can sell it. Here is how these models work:
➣ Leasing and Renting: When you rent a property, you allow a tenant to live in the property. In return, they give you a monthly fee. When you lease a property, you give it to the tenant on rent for a guaranteed amount of time that is decided with a prior contract.
There is just one drawback of this model that in spite of giving it on rent and allowing someone else to live in there, the maintenance of the property is your responsibility. If you have more than one property and you rent all of them, the amount of maintenance can be huge. Also, you may have to get the property completely repaired or maintained before selling or renting it again to get it into good condition.
On the advantageous side, you can earn good fortune through rental income if you have more than one property.
➣ Flipping: This means selling your property to earn net profit. With this model, you buy a low priced property, improve it and then sell it for a profit. Though it yields the most reward, it can be very risky for a beginner investor because you will have to predict which property would be sold for profit in the minimum time.
To get the deal right, it is important that you find out the right property that can be flipped for profit. Then you will have to invest in its repairs and remodeling. For this part, it is important that you have sufficient money in your hand so that the repairing work can be completed in the shortest period of time. Since the property is still owned by you, you will have to make the monthly payment on it. That’s why it is important that you complete the remodeling work in the shortest period of time.
Thus all these approaches work efficiently for generating money from your real estate investment. If you are ready for dedicated and hard work, you can definitely make decent profit through real estate investing 101.
❖ In The End
Though investment in real estate can bring you huge profits but if you are a beginner in this field, you should be very careful when you actually put your money into it. Never enter this world with stock market mentality, which is assuming that the past trends will be repeated in the future. Refrain from buying real estate blindly by following everyone’s advice. Always accumulate cash reserves before investing in real estate, especially if you are renting your property. This will save you from unnecessary pressure of shoddy repairs, accepting unqualified tenants and giving into their demands.
You can do well in this business only if you act rationally and don’t assume that real estate is a way to get-rich-quick. Consider it as a business that will take good amount of time to flourish and only then you will be able to reap the maximum benefits out of it.