The real estate industry is one of the most profitable and lucrative industries in the world. Although it sounds ever-bright and promising, it does come with various challenges.
That is why it is necessary for you to have an in-depth understanding of the industry before performing any sort of activity with it. For without it, there is a big chance you may lose your cash. Nonetheless, knowing and learning how the industry works os of great importance.
You get to know how to look for leads, close deals, stake your price, and know the risks involved. With good plans and superb strategies, you will know when and where to invest. That is why this article sheds light on how the real estate industry works.
What is real estate?
Real estate is known as the collection of real properties (land, buildings) and improvements (fixtures, utility systems, roads, and more). It involves the buying, selling, or renting of real properties in order to maximize properties. Although real properties are somewhat similar to personal properties, they should not be confused with each other.
Personal properties include intangible assets (investments) or tangible assets(fixtures, jewelry). The property rights obtained from a real property often gives it the title of ownership as well as improvements.
How does the real estate industry work?
The real estate industry can work in a variety of ways for different individuals. That is, the way it works for investors isn’t the same for agents, developers, or even the clients. Here, we will examine how it works for different professionals.
Investors make the industry work through various investments. Owners of real properties can make their money by allowing a certain fraction of an upfront payment, pay off the balance over time together with interests. Here, we shall examine 4 simple ways by which investment works in the real estate industry.
- Become a Landlord
Becoming a landlord is one way to generate income. With a DIY plan, renovation skill and the patience to manage tenants, this task is convenient. All you need is a substantial capital that can finance initial maintenance costs as well as cover vacant months.
One major benefit of this is that it provides regular income for the owner. Also, the property is usually appreciated during mortgages making it valuable for landlords at a later stage. However, it comes with certain disadvantages. One of them is that rowdy tenants may eventually damage some intangible assets or properties in the home. To avert this situation, it is best advised to hire a property management company in order to take care of the headache.
- Real Estate Investment Groups
This investment method is ideal for people who want to own rental properties without running it. Here, a company purchases a set of building(s) or apartments and allows investors to repurchase it through the company, thereby joining a group.
The investor can own the units while the company handles the rest in terms of management, maintenance, or advertising for rent. The main benefit is that you can earn your income or add value to your property without managing it directly. However, the group may be the source of the problem especially in terms of management.
- Real Estate Investment Trust
This applies to investors who want to get exposed to the real estate industry without a traditional real estate transaction. Here, a corporation or a trust use to buy and manage income properties. They are bought and sold on major exchanges just like any type of stock.
To maintain the REIT status, the corporation or trust fund must payout 90% of its taxable profits in the form of dividends. This type is versatile for stock market investors who desire regular income. One major advantage of this is that REITs are dividend-paying stocks that comprise of holdings such as commercial real estate properties with cash-producing leases and more.
- Online Real Estate Investment
This category is ideal for individuals who want to invest in residential or commercial properties via online means. It takes investment capital to push this forward. One major benefit is that it easily connects online investors with real estate developers. You can also diversify your investments with little money.
- Real Estate Agent
Real estate agents help people to buy and sell properties. This implies that you can be a buyer’s agent or a listing (seller) agent. Real estate agents earn their income by charging a commission for their services. This commission is only paid out when all deals are finalized and the sale is complete. To successfully make their deals a success, they may have to do the under listed:
- Buyer’s agent and Seller’s agent connect with each other through information
- They negotiate on the sale
- Once the negotiation is finalized, they agree to final price
- They lookout for the legality of the sale
- They close sales and their commissions are paid.
There are other professionals that make the real industry. However, the aforementioned are the most common type or the one you will probably encounter. Go for the one that surely fits you.