For most of us, building wealth through real estate is an area of interest, uncharted territory. it seems like a fantastic idea, especially if you live in an area with a booming real estate market. But you may not be ready for the commitments. Real estate investment may be unfamiliar but it should not be avoided entirely. When approached correctly, real estate can present itself as a consistent, profitable and dependable source of generating considerable returns.
In this article we discuss the basics of real estate investment and the different types/ways you can begin and get your feet wet.
Real Estate Defined.
Real estate investing is the purchase, ownership, lease, or sale of land and any structures on it for the purpose of earning money. Real estate generally breaks down into three categories: residential, commercial, and industrial. It is common for investors to own multiple pieces of real estate, one of which serves as a primary residence while the others are used to generate rental income and profits through price appreciation.
How do you Invest in Real Estate.?
There are several ways of investing in real estate that don’t necessarily involve the buying and subsequent leasing of the same property. Investments in real estate generally breakdown into two categories: active and passive investments. For Active investments, it requires a great deal of personal real estate knowledge and hands-on management. On the other hand, Passive real estate investing offers opportunities to invest in real estate for everyone: those with extensive real estate and financial knowledge and those with limited or no expertise in the industry.
The common ways of investing in real estate.
- Rental Properties
Rental property investment act as a source of active income as it requires a hands-on management approach that is long term. Any type of property (residential, commercial, or industrial) can be a rental property. Property owners earn frequent cash flow each month in the form of rental payments from tenants. This will provide a steady, reliable income stream for investors. As a property owner, you could rent out anything from a bedroom, to an entire house or commercial property with an apartment building.
- House Flipping
Flipping a house means you purchase it, make improvements, and then sell it, all within a fairly quick amount of time. House flipping is generally a short-term project. The longer an investor has the house without new owners or tenants, the more their expenses start to rack up.
While house flipping sounds exciting, it requires deep financing and extensive real estate knowledge to ensure that the project runs within time and budget constraints.
The downside of house flipping is that updates and renovations have the potential to cost more than you plan. These costs could eat into your profits. It takes a lot of time and effort, so you need to think about whether or not you want to devote that kind of energy to such a project
- Home Ownership
The simplest form of real estate investment is home ownership. However, there is a difference between owning your own home and investing in other real estate company. When you own a home, you don’t actively make money or increase your monthly cash flow from the property. The bottom line is, when you pay off your home this is the best long-term investment you can make. This is highly recommended before investing in any other type of real estate. Owning a home is a huge part of achieving financial peace as it also frees up your budget to start saving for other types of investments.
Real estate has a track record of strong performance however, it does have its pros and cons, and it isn’t for everyone. It offers the potential to earn handsome returns and if managed wisely, it can become a valuable source of cash flow.
If you’re still wondering whether or not real estate investing has a place in your wealth-building plan, sit down and have a conversation with your financial advisory. Be sure you’re working with an experienced real estate agent to help guide you through each step of every project.