Real Estate Investing Basics
Know You’re Real Estate Investing ABC’s
Investing in real estate can be extremely lucrative. So, why isn’t everyone doing it? Well for one, not all properties appreciate, and determining if the current market is hot vs. cold, takes time to learn.
Let’s Get Down to Brass Tacks
Approximately 60% of the world’s primary assets are made up of real estate. What does that tell you? It should tell you two things:
- People and businesses need space, land, and structures to live and work on.
- Because real estate is a necessary component of life world-wide, it is a promising industry for investment purposes.
But before we go any further you should have a basic understanding of the following questions:
- What is real estate?
- What is a real estate investment?
- How do real estate investments work?
- What are the benefits of real estate investing?
- What are different types of real estate Investments?
- What are interest rates?
- How does risk come into play in a real estate investment?
What is Real Estate?
Real estate is all around us. Defined in simplest terms, it is property made up of land or buildings. It is space that can be purchased or sold a title or rights to. It doesn’t end there though. Items that are permanently attached to a property, i.e. roads, fences, structures, air, improvements etc., in most cases, are considered real estate property. Real estate has high value, and with high value there are laws governing the industry, so investing in this industry requires research.
What is a Real Estate Investment?
When we hear the word “investment” what’s the first few words that come to mind? Maybe “return” “profit”, “money”, you’re on the right track. The actual transaction of buying or selling land is a real estate investment. This transaction, for a profit, could involve selling, renting, managing, leasing, or buying land or property. You do not need to purchase property directly to invest in real estate though, you can invest in funds where a team of financial advisors manage your money for you.
How do Real Estate Investments Work?
A real estate investment is conducted through a legal binding contract between a buyer and seller. The contract covers the terms of the agreement for the real property. Often a loan of some kind is secured to finance the purchasing side of a real estate investment. Investing in a real estate fund also consists of binding contracts for purchasing shares or crowdfunding capital.
What are the Benefits of Investing in Real Estate?
If executed properly, a real estate investment can go a long way. Major benefits of investing in real estate include: dependable income, financial security over time, tax breaks, and real estate appreciation.
What are Different Types of Real Estate Investments?
At a basic level, the most popular real estate investments are:
- Purchasing Shares of REITs
- Residential or Commercial Rental Properties
- Mixed-use Rental Properties
What are Interest Rates?
An interest rate is essentially the cost to borrow, wherein the individual obtaining the loan owes the lender a fee calculated by risk, time and the amount lent. The lender in turn makes a profit from the interest rate in a loan. Interest rates in real estate affect the flow of capital, supply and demand, and can control property prices in many ways.
What are Associated Risks of Investing in Real Estate
All investments come with an assortment of risk involved. Risk in real estate investing could be as simple as not getting what you paid for, or fluctuations in the housing market. Nothing is ever certain; however, rates of economic growth indicate when certain types of investments are safer than others. Yes, property values do rise and fall based on a multitude of factors, but often you will find that some risk is coupled with reward in the real estate industry.