Why You Should Invest In Real Estate
The #1 reason why real estate investments make sense is for the higher returns than most other asset classes including stock markets. Since 1970, S&P has had an average return of 10.31% per annum. Compared with this, real estate has had a return of 11.42% since the 70s.
Real estate investing comes with benefits like:
- Substantial profit
- Control over assets
- Leverage over assets
You can invest in real estate at age and time and grow a promising financial portfolio.
In this post by Real Estate, we look at how real estate investments work and how one can make money from them.
How Do Real Estate Investments Work?
As a financial strategy, real estate uses ownership, management, renting out, selling, and purchase of a property for profit-making. You can invest in real estate in a variety of ways, but most of them rely on more or less the same set of economic factors. The first factor dictates that there must be a steady rise in the property’s value. Another is that not the cost of maintenance and ownership must not be more than the increase in real estate’s value.
Below are the primary ways in which real estate works to generate profit:
- Increase in the value of property
- Leasing out the property to collect rental income from tenants
- Generating income from business activities that rely on real estate
There are myriad other ways to make a profit from real estate investment such as using more sophisticated tools like – tax lien certificates. However, these 3 continue to remain the most popular forms of passive income generation in this industry.
Ways to Make Money in Real Estate:
Investment properties (rental real estate)
This might be the most obvious way to generate passive income from one or multiple real estate investments. One example would be that of buying a home and renting it out to tenants for the long-term.
Alternatively, you can also rent out a small building apartment or a multi-unit property. Some people like to rent out commercial properties such as office buildings/ retail offices and generate rental income from tenants every month.
Buying and renting out an investment property is the most common way to generate rental income from real estate investment, but it’s not without a bunch of downsides. Therefore, self-education and awareness are a must.
Cyclically Adjusted Cap Rate Purchases
Essentially, you buy a real estate investment when the rate of return on it is attractive. You invest in a certain piece of property for a specific reason. For example, if you speculate that the property will someday be worth a lot more than what the current cap rate dictates.
One example is that of undertaking development projects. The investors will look at the economic situation of the project, its current pricing, and calculate a projected future rental income.
This future value supports the current valuation which might appear too expensive due to the present economic situation around the development. However, because you understand economical factors, market, and consumers – you can see future profitability.
Real-estate Investment Trusts aka REITs
Pronounced as reet, a Real Estate Investment Trust is a type of company. The purpose of this company is to invest in real estate properties. You can also think of it as a mutual fund. REIT investors pool their money to buy commercial real estate assets.
Many such trusts can also be traded on the stock market. Because of this, REITs are a good investment choice for beginners and/or those who have limited capital. Some REITs also pay consistent dividends making them a great option for those who want a steady passive income.
You can find REITs specializing in almost all kinds of real estate imaginable. Many mutual and exchange-traded funds also allow you to invest and maintain a huge portfolio of ‘REITs’.
Although relatively new to the industry, crowdfunding can be used as a tool for making money off of real estate investments Essentially, when a professional investor or developer sees/identifies a real estate opportunity, he/she could use crowdfunding as a platform to raise the needed capital from individual investors.
Here’s one example – someone who wants to buy a hotel and eventually sell it by gradually renovating the property over the years might find crowdfunding promising. You can find a bunch of reputed crowdfunding marketplaces. However, you must know that the best marketplaces are mostly only open to accredited investors.
Those with substantial knowledge of real estate would already be familiar with the concept of house flipping. This is a highly lucrative way of real estate buying and investing. Essentially, you invest in a rundown residential complex, undertake a few repairs/renovations, and then sell it for a profit.
Although fixing-and-flipping may appear a cakewalk, undertaking a successful house-flipping project requires a ton of effort. You must also carry a lot of real estate knowledge; among other things.
The richest people in the world have one thing in common – they have all made real estate a huge part of their investment portfolio. If you too want to earn a steady passive income, you must get a real estate education.
- This is a guest post not written by the websites’ owner