Investing in real estate can be a very lucrative choice, but it can also lead to you losing most of your money if you’re not careful about it.
That is the main reason why most people do not invest in real estate despite the abundance of opportunities for investing in real estate. This fear of failure and loss mainly comes from the lack of knowledge, education, and information.
For this reason, we have dedicated this investment guide to cover all the basics of investing in real estate, and more particularly the processes and aspects of investing in rental properties and becoming a landlord.
Investing in Real Estate
Investing in real estate is the go-to option for millions of people around the globe. That is because investing in real estate is a sure way to make a lot of money. It has been reported that a very large portion of millionaires in the US, with a percentage that is above 80%, have achieved their wealth through investing in real estate.
So, what makes investing in real estate such a lucrative choice, and how can the average real estate investor compete in this highly competitive and crowded market?
What makes investing in real estate a great choice for most investors is the relative ease of predicting the market and analyzing its data in order to make the optimal investment decisions and greatly reduce the risk of losing money on your investment. Unlike the stock market, the real estate investment market is far less volatile, and the factors affecting it are more clearly identified and measured, which makes predictive analytics in it much more efficient and accurate than in the rival market – the stock market.
But with the increasing number of investors who are looking to build a wealth investing in real estate, and with the extensive amount of knowledge that any real estate investor needs to have about all the different aspects of investing and the market, there is a large portion of the population who wish they could get into the market and start investing in real estate, but they are intimidated by the sheer amount of competition and the knowledge that they lack to give them a fair chance to compete.
However, with the technological advancements that we have today, it is becoming much easier for beginner real estate investors to get into the market by becoming tech-savvy and using the available platforms, tools, and services that are available online to help them learn and achieve a successful investment.
So, now that investing in real estate has become more accessible and approachable for new real estate investors, let’s delve into the details of investing in real estate, the different types of investment properties, and the different strategies that are employed to achieve the maximum profits and the minimum amount of risk.
What Is an Investment Property?
An investment property is any real estate property that is used to generate a profit for its owner using any of the available investing tools and techniques. There is no specific type of property to qualify as an investment property. Investment properties can include anything from apartments through rental homes and rental properties, to townhomes, luxury homes, and different types of commercial property.
Although an investment property cannot be specified under any category as long as it is possible to generate a profit out of it, real estate properties, in general, are categorized based on their functionality, type, and potential use.
The two most common types of real estate properties are commercial property and residential property.
A commercial property is a very profitable investment property due to commercial properties generally being larger in scale and designed to generate a higher profit for the investment property owner. Apartment buildings which include a large number of apartments or units (5 or more apartments) are generally categorized as a commercial property, and they typically generate among the highest returns for the investment property owner, while also having the least amount of risk associated with them. That is because an apartment building that has 10 apartments, for example, could still be generating enough cash to cover its expenses even if 2 or 3 of the apartments in the building are not occupied by tenants.
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So, unlike most other types of rental properties, vacant apartments in a multi-family unit or an apartments building will not greatly affect your cash flow or rental income from the investment property, which means that the risk of having a low occupancy rate for some of the apartments is not as big of a deal as with other investment property types.
On the other hand, if you are the property owner of a luxury home which you’re using as an investment property by renting it out, and the property goes vacant for a month, then you won’t be making any profit on it, but you will still have to cover its expenses from your own money, resulting in a loss on investment.
In addition to the two types of real estate properties, commercial property and residential property, each type can be broken down into several different property types.
Residential properties, for example, are properties that house an individual, a family, or a few individuals or families. So, if you wanted to become a residential investment property owner, you would probably start my search by looking for apartments for sale, a townhouse for sale, a condo for sale, or any other type of investment property that is meant for someone to live in.
Finally, investment properties can also be categorized based on the investment strategy that is being used.
Being a property owner does not necessarily make you an investor. Most property owners are people who have purchased residential properties to live in. But in order to become a real estate investor, you would have to use the investment property for the purpose of generating a profit.
Types of Investment Strategies
The three most common types of investment strategies include the following:
- Rental Properties/House Rentals
More Info: Top Six Real Estate Investment Strategies
The single most common type of strategies used for investing in real estate involves house rentals or rental properties. Rental properties and house rentals are investment properties that are purchased for the purpose of renting them out to tenants in exchange for a monthly rent, which will act as your main source of income and profit from this property.
If you are the property owner of a rental property, that makes you a landlord. A landlord is a property owner who owns one or more house rentals or rental units, such as townhomes for rent, or single-family homes for rent. A landlord is responsible for all aspects of their rental properties. This includes all the processes of finding tenants for the property, drafting a landlord and tenant agreement, maintaining the property and handling turnovers, screening the tenants, and all other tasks.
A buy-and-hold investment strategy involves the purchase of an investment property and holding ownership over it for a sufficient amount of time until the property appreciates in value before selling it and making a profit from the margin. A buy-and-hold strategy can be combined with a rental strategy and used for rental properties, allowing the investor to generate a rental income from the house rentals for the duration until the property appreciates and can be sold again for a profit.
A fix-and-flip strategy is a process of purchasing a property that is in a bad condition, which results in the property’s value dropping and having a cheap price, before renovating and repairing the property to increase its value and selling it at a higher value for a profit.
Note: Want to find properties with the optimal rental strategy? Click here to get started!
Real Estate Investment Guide
Naturally, there are several strategies, aspects, and techniques in the real estate market that are used to maximize your profits and avoid unnecessary risks.
Investing in real estate requires an extensive amount of learning and information; that is why every real estate investor who has not obtained official education on investing should look for an investment guide to learn from.
There are multiple online sources, both paid and free, that are used as an investment guide to help investors gain a foothold in the market and enable them to compete with other more experienced investors out there.
An investment guide can be a guide that targets a specific aspect of investing, or it could be a general investment guide which aims to instruct investors on the general terms, aspects, and dimensions of investing.
This article, for example, is considered a general investment guide that covers the basics of investing without delving deeper into the details and mechanics that dictate and affect the market. This investment guide aims to help beginner investors and enthusiasts touch the surface of investing in real estate to help them decide whether it is the right choice for them or not.
Real Estate Property Management
One of the major aspects of investing, and one which a landlord or a property owner should definitely keep into consideration for the future of his/her investment, is the aspect of real estate property management.
Real estate property management is the services that are provided by property management companies, which are supplied by a certified property manager for rental property management, and that will handle some or most aspects of your investment or rental property for a portion of the profit that you make.
Real estate property management companies can handle a wide range of tasks and responsibilities that are typically assumed by the property owner or the landlord, which makes his/her life much easier if he/she can afford the price.
Investing in real estate is a very profitable and smart choice when done right and when you have sufficient knowledge and information about the market. For this reason, the best place to start your investment journey is typically reading an investment guide before moving on to learn more about other specific aspects. With time, you will find that you already have an idea of where you want your investment to go, what investment strategy you want to use, and which types of rental properties you’re most interested in investing in.
If you’re looking for more investment guides like this one, or more details and guides about specific aspects of real estate investing and everything related to the market, we have included a number of links and articles that are a great place to start your learning journey, and you can always head to our blogs section at www.mashvisor.com/blog/ to learn more about real estate investing.
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