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What is Real Estate Investment?

14.04.21 11:36 PM

Introduction

If you are a beginner in the world of real estate investing, then you might be asking yourself what real estate investment is? To respond to that question, in its most basic form, it is purchasing any real property with the intent of profiting from the difference between your purchase price and the eventual sell price. 

Definition

Real estate investment, or “REI” for short, is the art of buying income-producing real estate in order to capitalize on the passive income that rentals provide. Real estate investment can be a very lucrative business, as there is significant demand for rental properties in most local markets. No matter what type or style of real estate investing you are looking for (residential properties versus commercial property, etc.), when you are conducting an investment, you will have to make choices based upon the numbers. If you don’t know how to read them properly or recognize what they are doing, then your potential profit and returns could be hampered.


Why real estate investment is and how it's different from buying a house

A real estate investment is a way for individuals and companies to acquire income properties. These properties can be anything from a single apartment building to a multi-unit building, land, or even an entire building. These rental-income properties are typically paid for using either a home equity loan, a cash down payment, or both. Let’s take a closer look at what it means to “invest” in real estate in order to understand what it means for real estate investors to “own” a home. Why are rental-income properties so popular? A lot of it comes down to how well they make you money. So if you like making money, real estate investment is the obvious choice.

What you can do to make an investment in real estate more successful

There are many things you can do in order to increase your chances of generating the passive income you are looking for. Here are two suggestions to help you get started:


1. Map your area: Try to find a neighborhood you can afford, with lots of property, within 5-15 minutes of work. You don’t need to live in the area, but you want to know it well enough to rent property in. 


2. Check around for properties for sale: Is there a market for a certain area? Is there a rundown property that could be renovated? Call the bank. Can you refinance your mortgage to save on monthly payments? If so, then you might be able to find a property for sale with a lower purchase price. Land prices can vary a great deal, especially in California.



Why invest in real estate

The most common reason people invest in real estate is for their income. Many people would like to have a passive income stream in place that can fund their lifestyle and allow them to not have to work very much. Buying rental property provides this option for those people who want to work for a living but would rather not have to. Buying a rental property will allow you to have passive income for the rest of your life, as it requires little maintenance and upkeep. In fact, sometimes you may even enjoy going into the property and helping the landlord run it. You also may consider buying a rental property as an investment in your children’s future.

Benefits of Real estate

There are many benefits and advantages of real estate investment. Real estate investment is an excellent way to grow wealth and earn extra income. You don’t have to be a millionaire to invest your money in real estate. By making wise investments, you can start building wealth today. Below are two benefits of real estate;

1. Considerable and constant cash flow: Yields and cash rents vary depending on the property and location. 

2. Low risk compared to stocks: When a business or individual invests in real estate, they must typically maintain the property and cover the property’s expenses (i.e. taxes, insurance, and maintenance) in order to maintain a positive cash flow. However, due to the durability and stability of real estate, there is little to no need to raise capital to cover these expenses. On the other hand, with stock investing, one must have substantial capital at their disposal in order to raise new capital to keep the business growing and generate new stockholders.



Tips for Investing in Real estate

There are many ways to make money in real estate, and it's hard to say one strategy is better than another. However, buying a single property for investment purposes, while lucrative in the short term, has the potential to significantly detract from the capital appreciation of the property over the long run. As with any investment, the key is selecting the correct property that you believe will provide you with an adequate rate of return and doesn't come with substantial risks. Many real estate investors have overlooked the use of passive income as an asset class to own for the long term.


Conclusion

There is a direct correlation between education and wealth and the real estate industry is no exception. Understanding the rental business will help you understand the basic fundamentals that facilitate the whole process. Real estate investment is a great way to turn your money into passive income. But how do you get started? That’s the hard part. The good news for you is that we have services designed to help investors get started with real estate investment, including educational services as well as coaching services.

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