For many investors, real estate investing is an unchartered territory. Because of its volatile nature, investing in real estate might be an unfamiliar investment opportunity, but it does not mean that it is avoided.
However, real estate can prove to be a lucrative and reliable way to generate substantial returns when approached correctly. It has the potential to create a consistent income stream while supplementing your portfolio with added benefits such as tax advantages, portfolio diversification, and appreciation potential.
Before jumping to the multiple ways through which you can invest into the real estate, let’s have a look at the basics of investing in it.
Defining Real Estate Investing
Real estate means sale, purchase, ownership or lease of land and any other structures on it for the purpose of earning a profit. Real estate is divided into three categories such as residential, commercial, and industrial.
Residential Real Estate
Before investing in real estate, it’s crucial to become familiar with all types of properties.
Residential real estate means a place that people used as a living space and not as a working space. This includes single family homes, multi-family homes, condominiums, and townhouses.
Commercial Real Estate
A commercial estate is the type of property which is used for the purpose of business. Commercial real estate can be classified as an office, retail, or land. The common examples of commercial real estate properties include business offices, farmland, and large apartment buildings.
Industrial Real Estate
The industrial real estate property serves an industrial business purpose. A case in point is storage warehouses, factories as well as power plants.
There are multiple ways to invest in real estate with any amount of money, time commitment, and investment horizon. Let’s have a look at the fundamental ways to invest in real estate with options ranging from intense, high efforts to hands off low effort.
1. House Flipping
House flipping is one of the most active, and hand on way to invest in real estate. In a house flip, an investor purchases a home and make potential changes which appreciate the value of the home in the market.
Then, the investor sale that house with the intention of earning a profit. However, house flipping is generally short-term investment mode in the real estate. As the longer an investor owns the home without leasing it to tenants, the higher their expenses add up. Though, an investor can renovate or repair the home to increase its sale price or sell when the market is offering a higher price for the asset.
2. Rental Properties
Rental properties also require hands-on management; however, unlike house flips, they have a long-term investment horizon. Any type of property (residential, commercial, or industrial) can serve the purpose of a rental property.
Moreover, property owners earn regular income in the form of rental payments from tenants. This provides a steady and reliable income stream for investors. Also, this investment mode requires a lot of work or a delegation of responsibilities to ensure that operations are running smooth.
3. REITs
A real estate investment trust (REIT) is a company which makes debt or equity investments in commercial real estate. In REITs, investors generally buy shares of the company and ear profit from its debt and equity investments in the form of dividends. Just like a mutual fund, REITs were created as a way to give ordinary investors public access to real estate investment.
Putting it All Together
Summarizing the above discussion, real estate has a proven track record of strong performance. Also, when managed wisely real estate can become a valuable source of cash flow in your investment portfolio.
Like any other investment, real estate investment also requires you to understand as well as weigh the risk and potential rewards before investing into it. Hence, depending upon the way you choose to invest in real estate, you are needing varying amounts of time, beginning capital, patience, and knowledge.
Author Bio:
John M. Crane, P.C located in New York has the necessary experience and expertise to represent clients in real estate transactions, business transactions, civil litigation, foreclosure defense and probate cases.
