Although investing in real estate provides higher investment returns, it is a more complicated way of investing compared to investing in mutual funds, stocks, or bonds. You have to find the best real estate property to invest in, choose the best deals, and sell at a higher price.
Understanding Real Estate
To understand how real estate investment works, it is a good idea to take a look at how renting a property works. It is the duty of the property owner to pay the taxes, the cost of maintenance, and the mortgage associated with the property. When the owner decides to rent the property, he or she will charge enough to cover the cost of maintenance, the taxes, and the monthly mortgage payments. Sometimes, he or she may charge more to gain profit, but only to the extent the quality or value of the property justify a higher rent. When the mortgage is paid in full, the rent payment turns into pure profit, less the maintenance cost and taxes, which are subtracted.
Unlike investing in stocks and bonds that sit on the investor’s account waiting for returns, real estate investment requires patience and long term commitment to maintaining the property. In addition, a property owner needs to face the dilemmas experienced by tenants. One of the main problems includes maintenance. Sometimes, it is much better to hire a maintenance man to cover repairs on the property.
Investing In Real Estate
There are many different types of real estate investment options to choose from. First, you can invest money in the buy-and-rent type of investment as described above. However, it may be wise to invest in a real estate investment group or groups. This option works more like a mutual fund where you do not have to do the dirty work. The group pools money from the investors as to buy and rent several real estate properties. The group will be handling everything - from advertisement to getting tenants, maintenance, and everything else. Since the group manages the properties, it will subtract a certain percentage of the profit and distribute the remaining profit equally among the investors.
Another way to invest in real estate is to trade properties. Investors buy some property, make certain improvements, and sell it for a higher price to gain profit. They may wait for the value of the home to increase before selling it to prospective buyers. This process is called flipping.