If you are anything like me, you know that real estate is an infinitely complex, riveting topic. The real estate industry has endless facets that one can endlessly dive deeper into. When trying to find your way around real estate investing for the first time, it can be entirely overwhelming. That is what I am here for. With almost four decades of experience in the real estate industry, I can lead you through the basics of real estate investing with ease.
The reason why anyone wants to get into real estate investments are simple: Money. One can either make billions of dollars in the industry or, to the opposite extreme, lose billions. There are literally hundreds of ways to make money and build wealth from a real estate investment, but we are going to stick with a few basics to help make the learning curve easier.
The oldest method in the book is to purchase real estate that can be rented for a profit. And example of this would be buying an apartment complex or single/multifamily home that can be turned for a profit. Gaining a profit from a real estate purchase is a marathon, not a sprint. It is a business, not a hobby. In order to make money from a real estate investment, usually one must earn just enough money from the rent that is being paid in order to cover the cost of a mortgage. Then, one can start earning a profit once that mortgage is paid off.
To begin, I will describe the ways in which one can earn money from a property and then go into the popular types of property that people purchase. In Part Two, I will dig into ways to find properties and ways to fund your investments.
4 Ways to Earn an ROI on Your Real Estate
According to Brandon Turner of BiggerPockets.com, there are four key ways of building wealth from a real estate investment, which are the following:
- “Appreciation: When property values rise, the difference between what you owe and what it’s worth will increase.
- “Cash Flow: When a property is rented for income, and there is more income coming in each month than expenses going out.
- “Tax Benefits: Owning investment properties can help offset income from other areas of your life (see your tax advisor for more information.).
- “Principle Reduction: If you carry a loan on the investment property, each month your amount owed decreases slightly. For example, if you buy a single family home with a thirty-year mortgage, after thirty years the loan would be paid off (with the help of the tenants’ monthly rent payments) and you’ll own the property free-and-clear.”
Now that you know how money is earned in this industry, I will explain the types of property that people commonly purchase.
Popular Types of Real Estate
Turner suggests there are a few different types of common real estate that people invest in for a great ROI.
- “Single Family Homes,
- Multifamily Properties,
- Apartment Complexes, and
- Commercial Buildings.”
When going into real estate, it is important to keep in mind that it is vital that you choose one type of niche in which to invest. When you spread yourself too thin across multiple different strategies for investing, you become a source of knowledge to no one on real estate. When searching for ways to fund your investment, your investors will be less likely to trust you since you are not an expert in any one field.
For “9 Insightful Ways to Find Real Estate,” and “Finding Ways to Fund Your Investment,” check back next week! Tweet me @wdarrowfiedler with any thoughts or questions.