Real Estate investing explained
Investments are tricky. They can make or break a person in any given time-interval. Similar is the thing with real estate investing. Through this medium of investment, one can gain many financial benefits. But let us look at the basics of real estate investing first:
What is real estate investing?
This type of investing is very diverse. It involves managing, operating, moving cash and a high risk involvement. The ways of making money through this investment mode are differentiated into four categories:
- Appreciation
- Cash flow
- Principal reduction
- Tax savings
The above four listed ways have their major share in the real estate investment world. Along with the main modes, there are several other ways to earn money through real estate. These ways include commissions, advertisement services and appraisals
Cash flow obtained from rent is the simplest form of money obtained through investing in real estate. Similarly, appreciation is another way of bulking up money, if you plan to do it in a longer period of time..
Where to begin investing in Real Estate:
There is a plethora of options when it comes to investing in real estate. As a real estate investor, you need to invest in as many domains as possible in order to widen your “investor portfolio”. Some of the investment options is this business are:
- Residential real estate investing
- Commercial real estate investing
- Industrial real estate investing
- Retail real estate investing
- Mixed use buildings
Because of it being a platform with multiple capabilities, you can get involved on the lending side of the real estate investing by:
- Use the help of banks to include public stock ownership
- Private mortgages for individuals
- Facilitate hotel franchise development by investing in mezzanine securities
- Leasing and sub-leasing the space to generate cash flow
- Acquire tax-lien certificates.
Real Estate Investment Trust (REITs)
There was a time when real estate investing was only considered to be for rich people. Thanks to the REIT, now even small investors can take part in this opportunity. A small investor can invest on buying small rental spaces or homes, but going for the big bucks like building shopping centers or hotels is something far-fetched for them. Enter REIT, through their tax structure now even they can be part of huge investment requiring opportunities. If a corporations comply with the rules of these structures they get to be exempt from paying Federal Income tax.
The only downside of these REITs is that dividends paid out to people are not qualified dividends and do not allow the owner to take advantage of low tax rates available for other dividends.
Risks of real estate investing:
Real estate has a standard way of giving out to the owners. The returns generated are well enough. Although, it must be made clear that debt is involved and if things don’t go well for your investment, it can go berserk on your finances.
If we look at the conservative real estate investors they keep their debt-to-equity ratio to 50% or 100% equity in extreme cases.
It is suggested that if you deal with the whole investing things with patience and not try to get rich quickly, you will never be taken aback and your wealth will slowly built up for you.