Many people want to invest in real estate, and for obvious reasons. They get income by simply owning property. Over the last few decades, real estate investing has become an incredibly popular endeavor. It is important to understand that being successful in real estate investment requires more than owning a few great properties.
Rental property investments: This is the most common type of real estate investing. In this type, a person buys a property with the intent to become a landlord and rent it out. In this case, the owner is responsible for taxes, maintenance, mortgage, and other costs associated with the property depending on the type. The owner rents the property at an amount which covers his or her expenses until the mortgage has been paid off.
After the mortgage is paid, any rental income becomes a profit. The property should hopefully have appreciated in value over the course of the mortgage. It is important when searching for a rental property to choose a home that is predicted to increase in value in the long-term future. Owning a rental property is typically not this cut-and-dry. It is delusional to expect that once your mortgage is paid off you hit the jackpot and get free income forever from that property.
Real estate investment groups: These groups are for those that want to be able to own a rental property but don’t want to deal with having tenants. An investor can own either one or many units of the space, but the specific company that operates the group will perform the maintenance, market the property, and screen tenants. Keep in mind that the company will take a percentage of the month’s rent. In this situation, the lease will be in the investor’s name.
Real estate trading: Real estate traders purchase properties with the sole intention of holding them for a very small period of time; generally no more than four months. The goal is to sell them for a profit. People also call this term ‘flipping properties.’ The properties purchased are either way below value, or in a very hot market. Actual property flippers do not put money in with the intend to improve the house; the investment has to have value to turn a profit without altering it, or else they won’t buy it.
REITs: This is the abbreviation for a real estate investment trust. This is created when a company uses investors’ money to purchase and operate properties. They are bought and sold like stocks. Corporations have to pay ninety-percent of its taxable profits in the form of dividends. REITs allow investors into investments that are non-residential. These would include investments such as shopping malls, office building complexes, and the like.
Leverage: If you want to purchase a stock, you are going to need to pay the full value of it when you place the buy order. Usually, a mortgage will require twenty-percent down on the property. However, there are different types of mortgages that require less, meaning you can control the property and the equity of it by only paying part of the total value. Keep in mind that your mortgage will still eventually pay the entire value of the home at the time you purchased it.
With any investments, there is always potential. The important thing to take away from this article is that real estate investing is much more complicated beneath the surface, and you should weigh all pros and cons before purchasing a property. Good luck!