How To Invest In Real Estate

How To Invest In Real Estate

Investing in real estate, like investing in anything, can seem like something way above the reach of the average person. However, it’s not as complicated as you imagine. In this article, we will give a brief description of what rental properties are, what an investment group is, what a REITs is, and what the term “leverage” stands for.

Rental Properties

A rental property is one that is purchased by an investor who then rents it out to a renter. The investor, or landlord as they may now be referred to, is charged with the task of maintaining the house. They make sure the roof doesn’t leak, that there isn’t a bug infestation, that the fridge is running and so on and so forth.  For most people who invest in estate, the benefits are long term. Usually the investor will charge a renter just enough to cover the mortgage cost and some expenses. Once the mortgage is paid, then the investor begins to see some profit. As well, over the years the property, hopefully, begins to increase in market price, thus providing even more profit for the investor.

Investment Groups

Investment groups are like the mutual funds of real estate investment. Basically, if you don’t want to run the risk of buying a property, maintaining it, and being landlord over the tenants, all while trying to make a profit, investment groups could be for you. Investment groups buy a group of condos or apartments (or build them depending on the money available) and rent the rooms out to tenants. All the investors names are put on the leases. So, as an investor you may own 2 or 3 of the apartments in the building. Like mutual funds there isn’t as much money to be made as quickly as if you invested in your own property. For getting out of landlord duties there is a small fee generally. However, like mutual funds, there is more safety in belonging to an investment group. For instance, if one of your apartments is not rented you’re not going to be made to cover the loss. All the investors investments are pooled together to cover it for you.

Real Estate Trading

Real estate trading (or flipping properties as some might call it) is a whole other level of real estate investment. If investment groups are the mutual funds of real estate investment then real estate traders are those guys you see on television pulling their hair out on the trading floor of the New York Stock Exchange screaming expletives that you can’t hear because a newscaster is narrating over the muted video. Basically, real estate traders invest in a property for a very short period of time (2 to 3 months) in which they try to quickly sell it again for a profit. These properties cannot be damaged as this will impair the traders ability to flip it as quickly as possible. If they get stuck with the property the trader can be in a lot of trouble, as they generally don’t have the mortgage to keep the property any longer than a few months.

Keys to a new home.

Leverage

Leverage is another name for the money the investor does not have. It is the mortgage amount that the investor had to loan from a bank in order in buy the property they wished to invest in. Having high leverage can be seen as a good thing or a bad thing depending on what sorts of investments you like to be involved with. If you want to make a lot of profit instead of having a larger leverage is what you want because you have paid very little (the bank covers most of it in the mortgage) then when the property is sold or when the mortgage is paid off you stand to make a lot of money. However, if something were to go wrong and the property wasn’t sold or you didn’t have a tenant, then you would be left with the mortgage.

REITs

A real estate investment trust is when a corporation uses investors money to buy properties. These investors are found down at the New York Stock Exchange, on Nasdaq or at the American Stock Exchange. So, as you can see, the main difference between REITs and the others I have previously mentioned, is that the property is available as investment stocks on the major stock exchanges. Another difference is that the REITs are usually involved in larger properties such as malls and airports. They also get taxed quite heavily, in comparison to the aforementioned real estate investors.

line
footer
Investogram attempts to provide relevant information about investment options that is meant to be useful, and, aknowledges that the mention of products in this website is no guarantee of performance. Investogram accepts no responsibility whatsoever and reccomends that readers use this site for general education and then consult an investment professional before any purchase.