Real estate investing is a process in which real property is treated as a tool for gaining profit, i.e. it is bought, sold, owned, managed and/or rented with the aim of generating income. Real estate investing is different from the other forms of investing in that property market is usually less organized and requires a lot more research to be conducted for the decisions to be efficient. Besides that, unlike other investment instruments, real estate value is highly dependent not only on the inherent properties of an object (which can be influenced), but also on its surroundings and general prestige (which cannot be influenced as easily). This also adds some complexity to the matter.
If you own the house/apartment which you live in, it is also technically considered to be an investment, because it is a part of your total assets. At any point it can be sold or rented out, this becoming an apparent source of income. For many people this is where real estate investing ends. This article, however, explores the possibilities of buying property besides your main residence with the sole aim of generating income. For this purpose, the two major categories are residential and commercial property investments.
Residential estate
The three primary methods of investing in residential property is buying and renting, buying and selling, and operating through an agency.
Renting out
The simplest way is renting out a property you own. This means that a landlord (the property owner) grants a tenants or tenants the right to reside at the property in exchange for money (payments are usually made on a monthly basis). The landlord is also responsible for the maintenance, management, tax and mortgage payments for the property. These factors have a major influence on the size of the rent, keeping in mind that the main aim of such a property investment is to generate profit, i.e. the income must be higher than all the expenses, and the only source of income is rent.
As with any other types of property, the correct location is essential. One of the most profitable residential estate locations are near high schools, universities and alike. Quite naturally, it is important to avoid locations notorious for criminal activity. It is also useful to to follow news about labour localization and move your real estate investing projects to neighbourhoods popular with employers, as proximity to one’s workplace is an important factor for any potential tenant. This also relevant for any kind of development – a growing neighbourhood is good place for long-term investments. Keeping an eye in the financial situation in the area is valuable as well – it is important not to set the rent too high, as it will scare off the customers even in an advantageous neighbourhood.
The biggest potential disadvantage of renting out a property is an unsuccessful initial investment. This may lead to low rents, damaged property or a total absence of tenants, which would leave an investor to cover the mortgage from his/her personal means. On the other hand, a good choice of initial property can bring a steady stream of income, allowing for new and new investments.