The goal of real estate investment is to allow investors to spend their money so they could have it grow and have more money in the future. Essentially, the amount of profit you make has to exceed the risks that come along with investing in property such as taxes, utilities, and insurance. If you understand this, you can start to conceptualize how to be successful with real estate investment.
The basic model of successful investing is to purchase properties, avoid bankruptcy, and generate enough rent to purchase even more real estate. If you are thinking about getting into real estate investing then you can use this guide to help you understand about real estate investing opportunities and where you should consider starting.
Four ways to make money with real estate investing
- Real estate appreciation. In this strategy, the value of the property increases as a result of real estate market changes, the area of your property becoming busier, or property upgrades. If you consider real estate appreciation, know that it is riskier than our next strategy.
- Cash flow income. Cash flow income results when you purchase real estate to operate it and create a stream of cash that comes from rent. Rent is the money that is paid to you by a tenant in order for them to use your property for a period of time. Common sources of cash flow incomes may come from rental houses, apartment buildings, car washes, office buildings and more.
- Real estate related income. This strategy usually involves “specialists” in the industry of real estate such as brokers. Real estate related income may also come from real estate management businesses who run the day-today operations of a piece of property in exchange for a percentage of the rents. For example, a hotel company who takes care of the day-to-day operations such as mowing the lawn, hiring maids, running the front desk, and washing the towels receives 6% of the hotel’s sales.
- Income from ancillary real estate investment. Ancillary real estate investment involves purchasing something like a laundry facility for an apartment building or a vending machine for a building. For some investments, this can particularly generate a large amount of profit.
Considering where to begin with real estate investing
There are many ways to begin real estate investing. If you make a property purchase, you can take out a mortgage against a property by using debt. This is an attractive option to investors as it allows them to buy properties that they couldn’t otherwise afford, but it can be very risky because payments and interest expenses can cause you to go bankrupt if the market begins to fall. For risk management it is advisable to not use your name in the purchase of real estate. You will instead use special legal entities such as limited liability companies to hold your real estate investments. In doing so you are protecting your personal assets in the case that your investment fails or there is an accident that reults in a lawsuit.
Well this concludes my guide to getting started with real estate investing. If you in fact want to get started with investing in property, remember the 4 ways you can make money with real estate investments and choose the best strategy that would work for you.