Investing in real estate is more than just finding a place you’d like to buy. The whole idea of investing in real estate has become very popular only within the most recent 50 years and is a very common way to invest money. The real estate market has a lot of opportunity to make a lot of money by buying and owning different pieces of real estate. However, investing in real estate can be quite a bit more complicated than stock or bond investments.
Rental Properties
Many people will buy a house or property or land then rent it out to someone. This buy is called the owner or the landlord and the renter is called the tenant. In this contract, the landlord is responsible for paying the mortgage as well as the taxes and any maintenance costs on the property. Typically, the landlord will charge enough rent to the tenant in order to cover these expenses. Often times, the landlord will charge extra in order to make a profit from the rental property. However, another strategy to benefit the tenant is to only charge enough for the owner to break even until the mortgage has been fully paid off and the landlord owns the property outright. Ideally, by this point the property will have appreciated in value and the owner will now have an asset that is higher in value.
Although the rental idea sounds great, there can be risks involved. For example, you could end up with a bad tenant who either pays rent late, doesn’t pay at all or damages the property. Or, you could end up with no tenant leaving you to be fully responsible for the mortgage payment. It helps if you ware careful about your location. You want to find a property that is in an area where decent people will want to rent.
Real Estate Investing Groups
If you want to own rental properties but don’t want to be the actual landlord, you can partner with a company known as real estate investment groups. They will buy or build a set of condos or apartments and then investors are allowed to buy into them if they go through the company. This is how they join the group. A single investor is able to own multiple units if he or she so desires but the group will manage all of the units. This means that they will take care of the maintenance and getting tenants for vacant homes. In return, the company takes a percentage of the rent that comes in every month.
Typically, the lease will be in the investor’s name and all the units put together a portion of rent in case one of the units becomes vacant so that there will still be enough money to pay the mortgage. Investment groups are a fairly safe way to get your foot into investing in real estate. However, groups are somewhat vulnerable to a lot of fees so you’ll have to do the research.
Real Estate Trading
Real estate traders will buy properties, only planning to keep them for a short time, as short as three or four months because they are hoping to be able to flip them and resell them almost immediately for a profit. Typically, no money goes into these houses for improvements, etc because in order to turn a profit, they need to put in as little work as possible. This is a pretty big risk because if a house won’t sell, then the owner is stuck with a long term situation that he only has short term cash available for.
Another kind of flipper will buy a property and take the time to add value by improvement and renovations before trying to sell. This is a longer term investment and a little safer because the buyer generally is planning conservatively. These kinds of investors usually only take one property at a time and move slowly through the market.
Real estate investments can be quite risky if things don’t work out as planned. From about 1940 to 2006, the real estate market was steadily increasing but then all of a sudden in 2008, the market dipped and has fluctuated since. This has made investors nervous about investing in real estate.