Investing in real estate is one of the oldest ways to build your wealth, and its origins date back to the emergence of civilization when tribal elders dispersed fertile land in an emerging agrarian age.
Some of the most common ways of making money from real estate include residential real estate investing (buying homes), commercial real estate investing (buying office buildings), industrial real estate investing (buying factories and warehouses), and retail real estate investing (buying shopping centers and malls).
Start by Understanding Real Estate
Real estate investment can be highly profitable because you are dealing with high-ticket assets. But it has its risks, and the first thing you must do is to acquire a real estate education. Without it, you won’t have a clue about how to research real estate opportunities, close a deal, fix up or maintain a property, rent or sell it.
It is, in fact, a complex subject that requires understanding many legal, economic, and financial matters. You will, for example, need a working knowledge of property law, micro- and macroeconomics, and finance, as well as understand how land development, property management, and mortgage lending works. This knowledge will empower you to do a wide range of things, like transferring a property’s title into a limited liability company or purchasing property with the aid of a land trust.
So, before you can competently buy, rent, or sell a property, you must acquire an education about the ever-changing real estate market.
3 Ways to Invest in Real Estate
There are numerous ways to invest in real estate. Three of the most popular ways if you are new to this industry is to think about investing in Real Estate Investment Trusts (REITS); buying rental properties; or purchasing fixing, and reselling properties.
- You can invest in Real Estate Investment Trusts (REITS).
A Real Estate Investment Trust is a corporation that owns a large number of income-producing real estate. For instance, it might own industrial real estate like warehouses or commercial real estate like hotels and shopping centers. You can become a shareholder of a Real Estate Investment Trust when it offers an initial public offering. Since the corporation must regularly distribute 90 percent of its taxable income to its shareholders, you benefit when it buys, rents, leases, or sells its properties.
- You can buy rental properties.
When buying rental properties, it’s best to start small, first investing in single-family homes before moving on to buying apartment complexes, and it’s always a good idea to work with financial professionals to understand how to use leverage when buying property. When making your purchase, you must understand the math—because if you don’t focus on the return on your investment, you could end up losing money rather than making it. Another potential hurdle you must overcome is learning how to manage tenants. If the property you’re thinking of purchasing already has tenants, then you should first find out about your inherited tenants and become aware of any short-term rental restrictions. If the property you’re thinking of purchasing does not have tenants, then you must get good at learning how to advertise for and screen tenants.
- You can purchase, fix, and resell properties.
This type of income generation is referred to as “flipping houses.” First, you’ll find a distressed property that is in desperate need of significant repairs. For instance, it might have been ruined by a flood. Since the property is in bad shape, you will be able to buy it at a low price. Once you own the property, you must then spend money on fixing it up until it becomes an attractive home. You will then sell this property at a much higher price than you paid to buy and fix it.
In order to be successful with this type of business, you need to be highly organized, creating a house-flipping business plan and setting up business operations. For instance, you will need to identify what type of houses you to buy that can be quickly renovated and profitably resold. You will also need to find lenders for financing and to organize your own construction crew.
The easiest point of entry is to simply buy shares in Real Estate Investment Trusts (REITS). Many beginners in the Real Estate business usually focus on residential real estate, either buying a rental property or flipping houses. Both of these can be profitable if you go about it the right way. For instance, you need good tenants to benefit from rental real estate and you need to accurately gauge your costs-to-expenses ratio when flipping houses.