Real estate investment for beginners | Real estate investment methods

 Real estate investment for beginners | Real estate investment methods


The importance of real estate investment for any individual or company looking for asset classes to invest part of its capital has become clear, as real estate represents 60% of the main assets in the world and a large part of the wealth of companies and even individuals. But before you decide whether or not you want to invest in real estate, you first need to understand the basics of real estate investing.
This article is specially designed to provide you with answers to all questions about real estate investing, starting with the initial and basic question: What is real estate?
What is the drug?
The first thing most people think of when they hear the term real estate is land, homes, or other types of buildings and structures. While these are indeed components of a drug, they are far from the full definition of a drug. Property is generally defined as a specific piece of land, a house, shop, office building, or other type of built structure, and can also refer to things permanently attached to that property such as fences, roads, trees, and even utility systems on the land, as well as the rights inherent in a piece of property. of property such as air rights, water rights, and mineral rights to any natural resources in the Earth underground.
How can I start real estate investing with little money?
Most people may think that investing in real estate is only for the rich, but anyone can enter the world of investing in real estate with a little money. Many major real estate companies are publicly traded such as real estate brokerages, real estate development companies, construction companies, etc., in which you can simply buy shares.
Another form of real estate investment is real estate crowdfunding which allows individuals to participate in deals without investing a lot of capital.
Real estate investing for beginners
The main objective of investing in real estate is to invest your money now to double it in the future. The profit or return that you achieve from your investments must be sufficient to cover the risks you are exposed to and the taxes you pay, in addition to other costs of owning real estate such as utilities, maintenance and insurance. Remember that the key to success in real estate investment lies in understanding the basic factors of investment, economics, and risks.
Four ways to make money through real estate investing
There are four main ways you can make money with real estate investing:
1- Real estate appraisal
This is what happens when the value of the property increases due to a certain change in the real estate market. The value of your property may increase, for example, if it becomes more crowded when a major shopping center is built next to it, or if you make modifications to it to make it more attractive. But real estate appreciation is a really tough game, it’s not easy to predict.
2- Cash flow income
This type focuses on buying a property such as an apartment building and then renting it out for cash flow income. This is not the only way to get cash flow, you can get it from various other types of properties such as storage units, office or retail buildings, and rental homes.
3. Income related to real estate
This income is popular with real estate industry professionals such as realtors, as they earn money from commissions on real estate they helped a client buy or sell. Property management companies sometimes even get a portion of the rents for running the day-to-day operations.
4- Secondary real estate investment income
This can be a huge profit generator for some. Additional real estate investment income includes things like vending machines in office buildings or laundry rooms in rental apartments.
Real estate investment tips for beginners
There are several ways in which you can buy your first real estate investment, either through debt or leverage. But whatever method you choose, you need to know how to manage the risks and protect yourself. Consider owning real estate investments through legal entities and not in your own name. If your investment goes bankrupt or an event occurs that leads to a lawsuit, these legal entities will protect your personal assets. This means that you will only lose the money you invested.
The pros and cons of real estate investing
Positives
  • Less risk than the stock market: The real estate market is not subject to the same fluctuations as the stock market. While it may be potential income, it will inevitably be constant.
  • Steady cash flow: When you own enough rental properties, you can count on a steady revenue stream for your business.
  • Good tax breaks: You can deduct all kinds of expenses from your taxes. These include mortgage interest, depreciation, property tax, etc.
  • Long-term returns are often positive: most properties increase in value over time.
Negatives
  • Real estate investing can be cash heavy: if you really want to have a steady income, you need a large initial investment. In addition to owning real estate, you need to pay for maintenance and so on.
  • Real estate is not a liquid investment: You can’t convert property into cash as quickly as you can when you sell stock.
  • Tenant management and building maintenance can be a challenge: Whether you hire a property manager or manage your investments yourself, this field can be full of unforeseen problems such as late rent, power outages, and repairs.
5 types of financial goals

With the changes taking place in the markets, this may be the perfect time to invest in real estate. You can save a lot of effort and time by hiring an experienced agent, but before that you have to make sure that the investment you choose is commensurate with your financial goals.
1- Generate a steady cash flow
Real estate investing can generate passive income that will continue to flow into your bank account until you decide to end it.
2- Raise the challenge
Repairing homes and breathing new life into them can be a challenge for some people, but making good profits is the reward for your hard work.
3- Building the legacy
Whether it is a future apartment for your children, or a house where you can retire later, investing now guarantees that you will achieve your future dreams.
4- Financial stability
The stock market can be volatile, but with time, most real estate will increase in value.
5- Desire to be your own boss
Real estate investment is the best way to increase your wealth and secure your future. Operating property to increase income will put you on the path to financial independence.
Different methods of real estate investment
As we mentioned earlier, the first thing that may come to your mind when thinking about real estate investment is your home. But the truth is that real estate investors have a lot of other options than physical property when it comes to choosing the right investments for them. Below is a rundown of some of the leading options for investors to choose from.
1- Renting real estate
Investing in rental property puts you squarely in the landlord’s box, so consider whether you’ll feel comfortable in this role. This trait puts you in charge of a lot of different tasks such as paying the mortgage, property taxes, insurance, maintaining the property, finding tenants, and dealing with any issues, so you have to be willing to work hard.
This is a practical investment as these tasks are available 24/7. Make sure you choose properties and tenants carefully to minimize the potential for problems.
You will earn your income either by collecting rent, and the amount of money you can collect depends on the place of rent. You must follow a specific strategy to impose rent where what you earn is enough to cover expenses and make a profit. Or by increasing the value of the property by repairing it.
2- Renovating and reselling real estate
You can buy real estate, fix it up, and then sell it back soon after at a higher price. There are two main approaches to this option:
fix
You can buy a property if you think its value will increase after making some modifications to it. This task will only require a few months or weeks before you sell it for a price that exceeds your total investment, including renovations.
Retention of the property
This method differs from the previous one, as you can spend anything on the property. All you have to do is buy in a rapidly rising market, hold it for a few months and then sell it and make a profit.
3- Real estate investment funds
A REIT is created when a company is formed to use investors’ money to buy, operate, and sell income-producing real estate. REITs are bought and sold on the major exchanges, just like stocks.
Like many dividend-paying stocks, REITs are suitable for investors who want regular income. In addition, it invests in a variety of real estate properties such as shopping malls, healthcare facilities, mortgages, and office buildings. Compared to other types of real estate investments, REITs are highly liquid.
4- Real estate mutual funds
Real estate mutual funds invest primarily in real estate investment trusts and real estate operators, and aim to provide investors with much broader assets than can be achieved through the purchase of individual REITs. Another advantage for retail investors lies in the analytical and research information provided by the fund, including details about the assets acquired and management’s perspective on the viability and performance of specific real estate investments.
Why invest in real estate?
The real estate market in general is characterized by low volatility, especially compared to stocks and bonds. Real estate is also attractive when compared to traditional sources of income return. Here are some other benefits of getting started in real estate investing:
Diversification and protection
Real estate has a negative relationship with other major asset classes. This means that they are leveraged when stocks are down. That is, adding real estate to a portfolio can reduce its volatility and provide a higher return per unit risked. The more direct the real estate investment, the better the hedge, and the less traded real estate investments such as REITs will reflect the overall performance of the stock market.
Inflation hedge
Real estate’s ability to hedge against inflation stems from the positive relationship between GDP growth and real estate demand. As economies expand, demand for real estate causes rents to rise, which in turn translates to higher capital values. Therefore, real estate works to maintain the purchasing power of capital.
With the exception of REITs, investing in real estate generally gives the investor a tool that the stock market does not: leverage. If you want to buy a share for example, you have to pay the full value of the share unless you are buying on margin. Even then, the percentage you can borrow from is still much lower than the percentage of real estate, thanks to a mortgage.
Most conventional mortgages require a 20% down payment. But depending on where you live, you may find a mortgage that only requires 5%. This means that you can control the entire property and the equity you hold by paying a fraction of the total value. The size of the mortgage affects how much ownership you actually own in the property, but you control it once you sign the papers.
This greatly encourages realtors, as they can take out a second mortgage on their home and make payments on other properties. Whether they lease them so that the tenants pay the mortgage, or wait for an opportunity to sell for a profit, they control these assets.
Summary
Real estate can be a sound investment that gives you the ability to provide stable income and build wealth. But it also contains some negatives such as lack of liquidity, as you may find some difficulty in converting the asset into cash and cash into asset.
Unlike a stock or bond transaction that can be completed in seconds, a real estate transaction can take months. Even if you get some help from a real estate broker, it may still take a few weeks of hard work to find the right counterparty.
Real estate investment funds provide better liquidity and better market prices, but they also come with some volatility and less diversification benefits, as their correlation with the general stock market is much higher than that of direct real estate investments.
But as with any investment, keep your expectations realistic, and make sure to do your homework and research before making any decisions.
Disclaimer: The content of this article is for informational purposes only. The information provided should absolutely not be considered as investment advice or a recommendation. No warranty is made, express or implied, as to the accuracy of the information or data contained herein. Users of this article agree that Money Secrets does not accept responsibility for any of their investment decisions. Not every investment or trading strategy is suitable for anyone. See the risk warning statement.

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