When you invest your money in something, the goal is to put in money today, and wait for it to grow, so that you have more money in the future. Investing in real estate is one of the oldest kind of investment, and probably the easiest to understand. Most investors are attracted to real estate, because the potential returns are huge and the risk involved is manageable. So if you a first-timer, what all do you need to know before you can make your first investment? Let’s find out.
The main concept behind real estate investing is to acquire a piece of tangible property at a reasonable price- an apartment, a land with a industrial warehouse, an office building, any land, find a suitable person who wants this property (the tenant) and make a profitable deal- with certain terms and conditions. The tenant is allowed to use the property for a certain period of time, under certain restrictions agreed upon a lease contract or a rental agreement.
There are basically four types of real estate: official, retail, industrial and leased residential. Residential real estate include properties like houses, apartments, buildings, or vacation houses, basically any place where a person can pay you to live there. Official real estate consists of offices and skyscrapers- if you manage to convert a building into individual offices, you can’t rent them to small businesses. On the other hand industrial real estate involves storage units, warehouses, mechanics, research laboratories, or anything for industrial use and retail real estate include shopping malls, strip malls, or any other type of retail storefront. Research about the different areas of real estate so that you can find the type of real estate project as per your resources. As a beginner, contact your financial advisor or a local investor who’s had some experience in this field.
The most important point to be noted while buying a real estate investment is NEVER purchase a property in your own name. Instead hold those properties through special types of legal entities that are the limited liability companies or limited partnerships. That way, if your investment falls into a lawsuit, you can at least protect your personal assets and not lose all the money you’ve invested.
Also for new investors, it is always advisable to invest through REITs (Real Estate Investment Trust). Instead of direct ownership, you are buying into shares of a portfolio of properties. REIT shares are also publicly listed and priced by market. When you purchase shares in a REIT, you become a partial owner of those properties. So you are managing the property without much headache, because a management team is doing all the major work- collecting rent and maintenance.
Real estate is easier to understand, but direct ownership isn’t simple passive earning. To earn profitable returns, you need years of practice. A wise man once said, “Real estate cannot be lost or stolen, nor can it be carries away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.”