The Basic Real Estate Guide
Real estate investing is a common term used in our daily lives. It is broken down into several segments like renting, purchasing, owning or selling of land or any structures built on it for the sake of earning a profit. Let us dig deep and see what real estate investing is about.
Categories of Real Estate
Real estate can be generally divided into three categories:
- Residential Real Estate: This category contains homes of different kinds. To state a few, it contains single family homes, multi-family homes, townhouses and condominiums. A residential real estate is a building that is used solely for the purpose of residence. Homes that are larger than four units are classified in the commercial category.
- Commercial Real Estate: The commercial real estate category includes properties that earn money for their owner. These properties are used for business purposes. This type of real estate can be classified into office, retail, land or multi-family. Offices, restaurants, farmlands and large apartment buildings are some examples of commercial property.
- Industrial Real Estate: This type of property is huge in magnitude and often limited to the peripheries of cities. They serve the purpose for industrial business. Some examples of an industrial real estate are warehouses, factories, power plants and refineries.
Ways to make money from Real Estate
In addition to property types, there are three main ways to make money from real estate investments.
- Interest from Loans: This can be termed as a deal between a real estate developer and an investor. As a result of the loan, the investors gain a constant cash flow. There are three types of debt in real estate i.e. senior debt, junior debt and mezzanine debt. The loans can also be given out by private equity firms, REITs and real estate investment platforms.
- Appreciation: Appreciation is one of the most common ways to generate income while investing in real estate. Owing a property and selling it for an increased amount of money is what appreciation is all about. It is tipped as a long-term investment, where the investor has to wait for years to get a high rate of appreciation. The sale of a property will provide the investor with a single huge return. It is up to the investor to decide whether to keep it as an active or passive investment.
- Rent: Rent is also a much-known type of real estate investing. An investor holds the ownership of a particular property and generates passive income by renting it to another party. A Rental land can be commercial, residential or industrial. There can be more than one investors of a rental property and earnings are often shared with a property management company.
It is important to notice that each property investment carries its own advantages and disadvantages. Before you invest in a property, it is recommended that you consult with your peers or even get professional help if required. Keep an eye on the return on investment, so that you avoid any future mishandlings.