What Is Real Estate Investing?
Real estate investment is similar to other investments in that you put your money into something to generate income. In this case, that something is real estate. However, this real estate isn’t where you’ll live, but property that others will rent or lease from you.
Your income is made through the rents as well as when property values increase. As values increase, you have the option of selling the property for gain or using the additional equity to purchase more property.
Direct Ownership Of Property
Buying property for yourself and waiting for its value to increase before selling is one way to invest in real estate. However, if you’re looking for an immediate regular return on the investment, direct ownership is not the way to do it.
You’ll want to enter the market by buying a piece of property that can produce positive cash flow. For instance, you might want to purchase a small home that you can rent out for more than the mortgage payment you’ll owe. You might also want to consider a condo unit or a complete apartment complex. No matter which way you decide to go, look for properties that currently offer a good cash flow and don’t have any hidden issues that will be expensive to repair.
When the property value rises, you can then sell it for a profit, using that profit to purchase another property or two. If you choose, you could hold on to the property, continue collecting rent, and use the higher equity in the condo to help you purchase another property.
Real Estate Investment Trusts
If you don’t like the idea of becoming a landlord, you still have other options for investing in the real estate market. The best option is through the use of a Real Estate Investment Trust (REIT). Through a trust, you take a partial ownership in different real estate deals. These investments can be held in either brokerage or retirement accounts.
REITs are a great way to invest, especially if you don’t want to be actively involved in the day-to-day operations of the property you own. Your REIT property will be managed by professionals. Additionally, you won’t need as much money to get started with an REIT. In fact, you can buy a share in an REIT for as little as a few hundred dollars. This means you don’t have to borrow money to get started.
And finally, and REIT is more liquid than owning a property outright. If you own the property, you’ll have to sell it to get your money back. This can take a long time. On the other hand, you have the option to sell your partial ownership at any time when you hold your property in an REIT.
Benefits Of Real Estate Investing
There are many benefits to having real estate as part of your investment portfolio. Here are four to consider:
1. Appreciation
Although the housing market fell recently, it’s rebounding. Over time, real estate almost always appreciates. As long as you keep the property well-maintained, you are very likely to see the value appreciate over time.
2. Passive Income With High Return On Investment
This is income made while you do something else. Stocks and bonds are also passive income. When it comes to real estate, however, the returns are often higher, more stable, and more predictable.
3. Tax Benefits
There are many tax benefits to holding real estate. In an REIT, you’ll not get double taxed for real estate gains. When holding property personally, you can deduct mortgage insurance and depreciation. You can also use 1031 exchanges to defer tax liability by using the money you made on one property to buy another. Check with your tax accountant for more tax benefits associated with real estate investing.
4. Long Or Short Term
Holding properties can be either a short term endeavor or a long-term one. It all depends on what you want to do.
Pitfalls Of Real Estate Investing
Real estate investment, like other investments, is not a sure thing. There are always risks involved in real estate investing. Here are a few:
1. Depreciation
The real estate market might fall in your area making your property worth less than you paid for it or, worse yet, worth less than you owe on it.
2. Competition
Too many properties will be for rent in your area causing you to have to lower your rental price because of the competition.
3. Maintenance
As a property owner, you will be responsible for maintenance and liability. If your property ends up needing extensive repairs, or someone sues you due to an accident, you can lose money.
4. Time
Being a landlord can be time consuming. You’ll need to collect rent, handle tenants, and deal with day-to-day issues. It’s possible to hire a management company to do this for you, but that will take some of the profit from owning the property.
Once you’ve considered the factors involved in real estate investing, Movoto.com is a great place to begin looking at potential investment properties and get connected to a knowlegable local real estate agent who can help you through every step of the transaction.
Like This Post? You’ll Definitely Love These:
