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August 28

Real Estate Investment Explained

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Real Estate Investment Explained

WHAT IS REAL ESTATE INVESTMENT?

If you are to mention a lucrative business in the world, real estate is one of them. Through it, several millionaires and billionaires have emerged from this business. Besides, the consistent cash flow obtained from the business solidifies an investor’s stand and as well, attracts new ones.

However, no individual would have been successful in the business if they were not knowledgeable about it. It keeps them on track and makes them aware of their faults. So, what do you know about this industry? How can you take a stand in it? Let’s find out in this article.

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MEANING OF REAL ESTATE INVESTMENT

Real estate investment deals with investing in real properties. When we mean properties, it refers to vacant land, residential properties (apartment, condominiums, townhouses), or commercial properties (factory sites, offices, malls).

These structures are tangible assets that appreciate in value over a period of time. That is why they can be used to generate income instead of being used as a place of primary residence. This supports cash flow and generates steady income for the owners.

CLASSIFICATION OF REAL ESTATE

  1. RESIDENTIAL PROPERTIES

They are properties where people reside. They can be newly-constructed or be resold for residential purposes. Examples include apartments, condominiums, townhouses, bungalows, duplexes, and many more. Income is generated by leasing the property or selling it. 

  1. COMMERCIAL PROPERTIES

These are properties that are used to run various businesses. They can be in the form of complexes which are parted into small units. Examples include office buildings, skyscrapers, and many others.

  1. INDUSTRIAL PROPERTIES
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Properties used for industrial purposes are known as industrial properties. They can be in the form of manufacturing plants or assembling units. Examples include factory sites, warehouses, distribution centers, and many more. 

  1. RETAIL PROPERTIES

These properties are in individual or multiple units. They are found in strategic locations like urban centers, universities or colleges, and many more. Examples include retail stores, restaurants, cinemas among many others.

  1. LAND

Vacant lands that are used for agricultural activities like farming, ranching, and others can take the form of real estate.

  1. FIX AND FLIP PROPERTIES

Residential properties that are bought at a low price are known as fix and flips. These properties are bought as a result of their poor maintained state. These properties are further renovated and repaired in order to be sold at high prices.

  1. MIXED USE

This type of property consists of different types of the aforementioned properties in order to enhance diversification and reduce the risk of failures. 

FEATURES OF REAL ESTATE INVESTMENT

The Real Estate industry has some features that make it unique. Here are some outlined characteristics of the industry. 

  1. TANGIBLE

Real properties have a physical existence. They can be seen and touched. However, they are immovable structures that are fixed to a particular location.

  1. IMMUNE TO INFLATION

When there is a negative economic impact in a particular location, real estate investment becomes a profitable option. Its value increases alongside the level of inflation.

  1. LEVERAGE

Real properties can be leased due to their physical existence. Besides, who doesn’t require a roof over their head? This makes financial institutions support the industry with their available resources. 

  1. UNCERTAIN MATURITY PERIOD
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Real estate investment doesn’t have a fixed maturity period like other investments such as bonds, stocks, or fixed deposits. Here, the owner decides when to buy and sell it.

  1. APPRECIATION

Real estate investment increases in value over a period of time. Apart from this, you can easily generate income through rental services while the value keeps increasing. This makes it advantageous to the owner.

  1. LOW LIQUIDITY

Real estate is a capital asset. This implies that it cannot be frequently bought and sold like other investments such as stock, equity, and many more.

  1. ACCEPTABILITY

Real estate is readily accepted by financial institutions. They can be easily used as collateral. This makes its acceptability stress free.

HOW TO EARN INCOME THROUGH REAL ESTATE

One can make money through the real estate industry. In fact, it comes through various options. Some of which include:

  1. RENTAL INCOME

Real estate enhances cash flow through this medium. Here, your properties can consistently generate income by leasing it out to people in need. However, you are bound to earn at a higher rate if your property is in a strategic location like urban centers, universities and colleges, and so on. 

  1. APPRECIATION

Real properties appreciate in value over time. Negative economic situations have little to no effect on it as it increases in value alongside with this. Apart from this, owners can earn a substantial amount of profit if a buying decision sets in.

  1. RENTAL COMMISSION

Real estate offers different types of jobs to people. That is why real estate agents and brokers earn a commission when facilitating the exchange of properties among buyers and sellers.

  1. REAL ESTATE INVESTMENT TRUST
Also Read:  REAL ESTATE: Meaning, Types, And Career

This can be used for those interested in the real estate business but do not have sufficient capital. Here, units of real trust can be bought when listed in the stock exchange.

CONCLUSION

Essentially, real estate investment is a profitable one and the best kind of passive or active investment with minimal risks involved.

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