Real estate investing is a way to earn money and increase wealth. Here we will discuss what real estate investing is, why you should invest in real estate, and how you can get started now in real estate investing.

What Is Real Estate Investing?

Although it can sound impossibly complex, understanding real estate investing is pretty straightforward. Any property that you own, buy, sell, or lease to someone else is considered real estate investing. We say property, but this also includes any buildings, structures, or features on the property.

There are three primary types of real estate available for investment. Investment property types are:

  • Commercial
  • Industrial
  • Residential

Commercial properties are pieces of real estate used by and for businesses. A piece of commercial property could include retail storefronts, office buildings, paid parking lots, medical plazas, and other properties where financial exchanges occur. People are not permitted to live on these properties.

Industrial real estate properties are locations where some type of manufacturing or warehousing takes place. Industrial property isn’t used for living space.

Residential properties are those pieces of land where people live. This includes houses, apartments, townhomes, and high-rises. Commercial and industrial activities do not take place in residential zones.  

Why Should I Invest In Real Estate?

Extra Money

Real estate investing is a way to make money. Depending on what and how you invest your funds, there is the potential for substantial profits in real estate investing. This money can be a large, one-time installment or it can be a steady, reliable stream of income.

More specifically, there are several ways you can earn money from investing in real estate. These include:

Rent Payments

As the owner of a property, you can rent out the space out to tenants who will pay you for occupying the space. Renting or leasing your property is considered a steady income source.

Property Value Appreciation 

The value of property typically increases over time. If you’ve owned property for a while, it is possible to sell your property for a profit later. This is an example of a large, one-time sum of money coming in from property investment.

Earnings On Interest

Loaning money to real estate developers at interest is a way to earn recurring income. The developer pays you back the money they have borrowed plus the interest incurred with the loan.

Portfolio Diversification

Real estate investing can help you with portfolio diversification. Diversifying your investment portfolio can create more stability with your investments for those “just-in-case” moments. It’s always a good idea to diversify your portfolio to reduce risks to financial loss.

Build Equity

As you contribute to your mortgage payments on any real estate investments, you are also building equity. The more equity you have, the better shot you have at qualifying to invest in more properties.

Tax Deductions

Investing in real estate also comes with the benefit of tax advantages. There are many tax deductions available for real estate investors.

Contribute to the Community

When you invest in property, you are securing your say in the happenings of the community. You can contribute by how you manage and care for your individual property or reap the benefits of working in conjunction with a home owners’ association.

Ways to Invest in Real Estate

There are several ways of investing. Here is the run-down of different styles and methods you can use:

Active Investing

Active investing is the DIY approach to real estate investment. It means that you will do the work yourself. You will purchase the property, manage the property, make any necessary repairs, and handle all aspects of the property without help from others. Active investing puts a lot of responsibility on the investor.

Passive Investing

Passive investing is when you invest your money into the property but allow real estate professionals to take care of everything else. As a passive investor, your only responsibility is to fund the real estate investment.

Online Real Estate Investing

Online real estate investing is a platform that facilitates the connection between developers and real estate investors. As an investor, you provide funds and the developer proceeds with the project. Many of the online real estate opportunities are a form of crowd-funding for real estate investment.

The potential downside of online real estate investing is that many of the platforms are open only to those investors who are already accredited or who have already accumulated substantial wealth.

Flipping

Flipping real estate, made popular by many current reality TV shows, is another way to invest in real estate. There are two ways to flip. You can flip a house, or you can get into wholesaling.

House Flipping

House flipping is the process of buying a home, renovating the home, and then selling it for a profit. This is a short-term investment with the potential for big profits.

Wholesaling

Wholesaling is the process of buying a house or property on the market for cheaper than it’s worth. The wholesale flipper will buy the property and quickly sell it to another buyer for more money. Usually, the wholesaler is selling to house flippers. Wholesaling also comes with the potential to earn a brokerage or finder’s fee in addition to the profit made on the sale.

Rental or Vacation Rental Buying

Buying a property to rent to others is another real estate investment idea. Renting a property is a way to secure a long-term income source. It tends to be a stable investment.

Leasing vacation rental properties like those found on Airbnb is another way to earn income through real estate. Vacation rentals are short-term rentals in furnished properties. The income from these rentals is variable. They are also regulated in some areas. Check your city and state guidelines for more information on vacation rentals.

Invest In Funds

Real estate funds are other options for investing. You can choose from private equity funds, real estate investment trusts (REITs), and real estate mutual funds. Each fund has different specifications, but the gist is that you’ll pay into a collective fund and receive profits on your investment money.

Conclusion

Real estate investing is a potentially lucrative investment that can help you in a variety of ways. Whether you are looking for major profits, passive income, or just to diversify your investment portfolio, investing in real estate can provide many opportunities.

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