Real Estate Basics

How to Invest in Real Estate

What is real estate?

Real estate can be defined as land and everything that is permanently attached to it, such as houses, buildings, etc. What comes in “permanently attached” often depends on the regulations of local, state, and federal authorities and what is cited in the property’s sale agreement. Real estate can also be referred to as real property – which is classified as land and everything permanently attached to it. But it is different from personal property – which are things not permanently attached to the land such as furniture, vehicles, equipment, etc.

Real estate investment is a good way to diversify your portfolio as it often proves to a lucrative investment. Income is generated in two ways – rental – and appreciation – when the property appreciates and sold at a profit. Anyone can invest in real estate as it is more accessible than you think.

Types of Real Estate

There are three main types of real estate:

1. Residential Real Estate

It is a type of real estate property where people can reside in apartments, single-family homes, condos, and vacation homes. Investors earn money in real estate by collecting rental income or by selling a property with an increased value.

2. Commercial Real Estate

This type of real estate is building or using a property for the purpose of business activity such as warehouses, strip malls, and office spaces. It also includes industrial real estate where goods are manufactured, like factories, and retail real estate where goods and services are sold, like malls. Commercial real estate owners also ace money from rental income and by selling a property on increased value to generate profit.

3. Raw Land

Raw land can be purchased, sold, and developed as per the need. Investing in land can be riskier because there is no way to earn a profit on it until you construct a building on it, then lease its use or use the land for agriculture purposes.

How to Invest in Real Estate

Here are the 5 most common ways to invest in real estate:

1. Homeownership

Investing in primary residences is one of the most common ways to invest in real estate. You can take out a mortgage, make monthly payments and slowly build homeownership. You can also cash in on the equity by selling the house when the demand goes up in the local market.

2. Real estate investment trusts (REITs)

Wading into the world of real estate investment through REITs is the best way to gain exposure to the market without investing time and money in purchasing your own money. REITs own, operate, or finance properties and real estate ventures. Like mutual funds and exchange-traded funds, they do not just own one asset but a variety of assets. Investors can invest in a share of REITs and earn a percentage of the income generated by those assets.

3. Rental properties

Investing in rental properties requires more commitment as compared to other real estate platforms so if you are up for that consider purchasing a rental property. Rental income can offer fixed cash flow also a possibility of appreciation over time.

4. Crowdfunding

Crowdfunding is for investors who prefer a more hands-on approach to real estate investing platforms. There are different online platforms that offer investment options for specific real estate development projects, rather than large-scale, generic portfolios.

Crowdfunding platforms pool money from more than one investor to fund a specific development project. Investors are generally required to commit to real estate for a longer period such as 5 years or more. You may have access to some of your money before then, but it depends on the platform’s discretion and you may be charged a withdrawal penalty.

5. Flipping properties

Some people buy homes to renovate and resell for profit. Flipping properties is time-consuming and expensive but it has the potential to bring in greater gains. To be successful in this type of real estate you must always be ready for unexpected problems, budget increases, longer renovation time, and selling issues in the market.

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