Real estate is considered as an investment since money put into it today increases over time, resulting in more money in the future. The return on investment (ROI) in real estate is often enough to cover the risks you encounter and the expenses incurred in owning real estate properties, which include bills and regular maintenance. Errors have consequences and you may end up in a worse situation than you started. Therefore, you must first understand the economics, factors of investment and risks involved in real estate investing. Here are the basics of real estate investment.
Ways Real Investors Make Money
Appreciation is when the value of the property increases as a result of a change in the real estate market. It may also be due to the increased scarcity of the land surrounding yours or upgrades that you added to your property to make it more attractive to prospective buyers. Appreciation is prone to inflation hence often considered a riskier investment than cash flow income from real estate.
Cash Flow Income
Cash flow income is a type of real estate investing that focuses on purchasing apartment buildings then operating them and afterward earning income from rent paid by tenants. This money is earned over the duration your property is in use by the tenant. Cash flow income can also be earned from running storage units and office buildings.
Real Estate Associated Income
It relates to commissions earned by real estate brokers that are considered specialists in buying and selling property in the real estate industry. This type of income similarly earned by real estate management companies who run the daily operations a property and get to keep a specified percentage of the rent.
Ancillary Real Estate Investment Income
It essentially involves running mini businesses in your larger real estate property. It may include offering laundry services in apartments or operating vending machines in office buildings. It provides a way of maximizing the profit you can earn from investing in real estate.
Guide to Purchasing Investment Property
There are several ways you can purchase your first real estate property. One approach involves taking out a mortgage against a piece of property. This often enables investors to acquire the property they normally would not be able to afford. It is, however, risky in a falling market where the regular loan payments and interest rates may drive you into bankruptcy. You should also consider buying property under legal entities and not under your name. This provides a means of risk management.
By understanding how to buy a property and the ways you can earn money from real estate, you are good to go as a real estate investor.