For many new investors, real estate investing is the easiest to understand the type of investment and also the most tangible and less risky. They consider real estate investing to be simple, straight-forward and involves a fair exchange between the property owner and the property buyer or the property renter. As long as the process flows in that direction, without any complications, the rent arrives on time, etc, everyone is happy and benefits. But, real estate investing is much more complex than it looks like. There are different types of real estate investment properties including residential, commercial, and industrial, as well as real estate that trades on stock exchanges, which are called REITs.
The title insurance company Riverside Abstract has designed this article in order to help the new real estate investors and those who want to begin investing in real estate.
As simply stated, the goal of real estate investing is to put money to work in order to increase it in the future. Your real estate profits must be big enough in order to cover the risk you take, the taxes, and the owner costs, such as utilities, maintenance, and insurance.
The concept of real estate investing can be simple as playing monopoly. You buy properties, generate rent in order to buy more properties. However, simple does not mean easy. In order to win, you must understand the basic factors of the investment, economics, and risk.
This article explains the basics of real estate investing in order to help you learn how to make money in real estate and what to expect.
The 8 Different Real Estate Investment Types
There eight different types of real estate investments: Commercial real estate, residential real estate, industrial real estate, mixed-use real estate, retail real estate, REITs, mortgage lending, and sale/leaseback transactions. Each different type has its own benefits and downsides. Experts from Riverside Abstract suggest you learn about each type in order to find your niche in real estate investing.
The 4 Ways Real Estate Investors Make Money
There are several ways to make money in real estate:
Appreciation- Due to a change in the real estate market, the property can increase in value. This can occur when the area is expanding and becomes busier when a new major shopping center is built next door, or the renovation of the property you have done recently makes the property more attractive to potential buyers or renters. In Riverside Abstract professionals’ opinion, real estate appreciation is trickier and riskier than investing for cash flow income.
Cash Flow Income- This type of making money in real estate is related to buying a rental property in order to generate a constant cash flow from rent. Until the tenants are paying the rent for using your property, everything is going in the right direction. However, there is a risk of dealing with problematic tenants.
Real Estate Related Income- This type of income is related to obtaining commissions from buying and selling a property or operating day to day operations of a property. Those who make money in this way are real estate brokers, real estate management companies, etc. For example, a real estate management company gets 5% of the rent of an apartment for taking care of the day to day operations, such as finding tenants, cleaning the apartment, fixing issues, collecting rent.
Ancillary Real Estate Investment Income- As claimed by Riverside Abstract professionals, this can generate huge amounts of profit for some real estate investments. This type of investment income includes things like vending machines in office buildings or laundry facilities in low- rent apartments. They serve as mini-businesses within a bigger real estate investment.
Tips for Purchasing Investment Properties
From Riverside Abstract point out that there are several ways to buy your first investment property. The most affordable way is to use debt by taking a mortgage out against the property. This way of financing a property seems to be attractive to many real estate investors because it makes it possible for them to acquire properties they otherwise could not afford. However, this type of financing can be dangerous sometimes, because, in a falling market, the interest expense and regular payments can drive the investor into bankruptcy if he is not careful.
From Riverside Abstract suggest that you will almost NEVER purchase a real estate investment on your own name. Rather than that, consider purchasing real estate properties through special types of legal entities such as limited liability companies (LLC) or limited partnerships (LP). You must consult a qualified attorney to tell you which ownership method is best for you. In this way, you are protecting your personal assets if the investment goes bust. If there is a lawsuit, the worst that can happen is you lose the money you have invested and your 401(k) plan assets, Roth IRA investment, and other retirement accounts should be out-of-reach.
If you want some professional help, you can get in touch with Riverside Abstract on LinkedIn. Its experts will give you the best advice.