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Real Estate Investing for Beginners

Real estate is not all that it seems. Let us help you understand what it really is and what you stand to gain when you invest in it as beginners.

There is no such thing as easy investing – neither for beginners or professionals.

Miniature house on top of stack of coins
A miniature house sits on top of a stack of golden coins

When you decide to invest in real estate, your goal will be to put money to work today and let it grow so that you’ll have more money in the future.

The profit you will be able to make on your real estate investment should be enough to cover three things. First, the risk you take. Second, taxes you pay. The third one will be the cost of owning the real estate investments – such as utilities, regular maintenance, and insurance.

Real estate investing has the possibility of being as conceptually simple as playing monopoly. That is if you really understand the basic factors of the investment, economics, as well as the risks.

Learn more about basic investment terms part one and part two.

For you to win, you will have to buy properties, avoid bankruptcy, and generate rent to buy more properties.

However, you should always keep in mind that “simple” does not automatically translate to “easy.” If you make a investing mistake, you can encounter consequences that range from minor inconvenience to major disasters. There is also a chance that you’ll end up broke or worse.

Read: Real Estate: Pros and Cons

So let us tell you what you need to know as a beginner regarding this market.

What is Real Estate?

When you hear the term real estate, you usually end up thinking of land or homes, or some other type of buildings and structures. Those are just components of real estate and are far from the real definition.

A definition of real estate made by the Uniform Standards of Professional Appraisal Practice (USPAP), the industry guidebook for real estate appraisers, defines real estate: “An identified parcel or tract of land, including improvements, if any.”

The word “improvements” is one of the major key that will help you understand what real estate actually is. It underscores the fact that real estate also includes anything fixed. Or anything permanently attached to the ground.

Improvements, when viewed in the real estate context, include homes, stores, office buildings, or other structures built on land. It can also allude to anything else permanently affixed to the property – such as fences, roads, streams, and trees.

Lastly, real estate can also mean several rights natural to the property. This includes air, water and mineral rights to any natural resources found on the ground under the property.

What is a Real Estate Investor?

Defining a real estate investor can now be made easier as you come to understand the inherent meaning of real estate.

Real estate investors can be defined as someone investing in the real estate market through purchasing, leasing or other means. They can be considered one by acquiring rights to a piece of real estate or any of the rights found in the piece of real estate.

Investing in real estate is often characterized by owning residential or commercial properties and renting them out. It can also be seen by purchasing such properties with quickly improving and reselling it for profits in mind.

But it also refers to innumerable kinds of investment opportunities.  This includes purchasing then leasing the mineral rights to a piece of land or investing in real estate investment trusts.

Today, real estate investing even includes direct participation in a large deal through a real estate crowdfunding platform.

A miniature house and key held by a man
A man is holding out keys as well as a miniature house on each hand.

Money in Real Estate Investment

When investing in real estate, there are several ways you can earn money.

  1. Cash Flow Income.

This focuses on buying a real estate property and operating it to collect a stream of cash from renting out. An example will be buying an apartment building and letting tenants use it who will then pay you rent. Cash flow income can come from well-run storage units, car washes, apartment buildings, office buildings, rental houses, and more.

  1. Ancillary Real Estate Investment Income.

This one can be a huge source of profit for some real estate investments. This type of investment income includes vending machines in office buildings, or laundry facilities in low-rent apartment buildings. They usually seem like a mini-business inside a bigger real estate investment. Such investment can let you make money from semi-captive collection of customers.

  1. Real Estate Appreciation.

This happens when the property increases in value because of a change in the real estate market. This can range from the land around your property becoming more in-demand. It can also happen when the place becomes busier, such as when a major shopping center is built next door. Income can also be made due to upgrades you put into your real estate investment. The upgrades can then be used to attract more potential tenants or buyers. Real estate appreciation can be a tricky game. This, in fact, can be riskier than investing for cash flow income.

  1. Real Estate Related Income.

This type of income is generated by “specialists” in the real estate industry. This includes real estate brokers – they make profits through commissions from buying and selling properties. Also real estate management companies, who gets to keep percentage of rents for running day-to-day operations of a property. This one is rather easy to understand. An example will be a hotel management company. The company gets to keep 5 percent of a hotel’s sales after taking care of day-to-day operations of the hotel. These operations include hiring maids, running the front desk, mowing the lawn and washing the towels.

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