Real estate investing has been one of the oldest ways of investing, which was prevalent even before the stocks and commodities entered the market.
Buying and selling of properties or holding properties as an asset until an emergency emerges have been some of the oldest financial practices known to humankind. And yet, it is quite ironical that most people are not aware of how real estate investing works.
Real estate investing for long times had been a family business where only the children of investors became investors, and the rest of the economy was only on the receiving side of the game.
With the change in time and increase in awareness, more people are thinking about real estate investing, and we can say that it’s never too late to start investing in real estate.
If you are a beginner to real estate investing, here’s all you need to know about real estate investing. This blog covers the basics of real estate investing, ways through which you can generate income from real estate investing and also about the most popular ways to begin investing in real estate.
Read on to find answers to – how to invest in real estate? Or What are the best places to invest in real estate?
The basics first – What is real estate investing?
Real estate investing is the broad way of operating, investing, and indulging in financial transactions centered around a tangible property to generate regular cash flows or one-time capital gains.
Real estate investing can be everything – from buying a property with an intention of reselling it at a higher price; buying a property with the intention of making small-or-big repairs and renovations to the same and turning it into a regular cash-generating asset; to holding properties for long periods of time with an intention of using it as a safety net should a financial disaster strike a family.
Bottom-line: The term real estate investing is a bigger umbrella covering various types and methods of generating income with a bunch of activities that are centered towards a tangible property.
Most popular ways of generating income through real estate investing
If you want to begin your real estate investing journey, you might be interested in knowing the most popular ways through which you can make money through real estate investing.
It surely provides you a sense of conviction with going ahead with your decision of entering the real estate investing game.
So, here are 4 most widely known and applied ways of generating income through real estate investing:
#1 – Real estate appreciation
Real estate appreciation is when the value of your property increases in the market, providing you an opportunity to make a handsome amount of money by selling your property at great prices to the interested investors.
The appreciation of a property is influenced by many factors like the demand and supply of similar kind of properties in the localities; certain repairs, renovations or additions to your property which may have increased the overall value of your property in the market and so on.
This way of making money from real estate isn’t always very promising as it’s a double-edged sword as there can be property depreciation too.
Hence, most savvy commercial real estate investors aren’t the ones that hold properties for long periods of time waiting for their property to appreciate.
#2 – Cash flow income or rental income
This way of making money from real estate investing is simple and the most widely used among the lot –
You purchase a property, make needed repairs and renovations to the property to make it more attractive to the prospective tenants, advertise about your property, meet a bunch of interested prospective tenants, negotiate the prices of monthly rental income and voila!
– You have turned your property into a cash-generating asset.
Cash flow income or a rental income can be generated by purchasing an apartment, multi-family properties, residential spaces, or commercial spaces. It is the most common space for investors who are beginning their real estate investing.
You may not have all the cash needed in order to buy a property but what are commercial real estate loans for? Research and homework are all you’ll need to find some of the best Commercial real estate loans that can fund your initial real estate investing needs.
#3 – Real estate related income
The third way of making money from real estate investing is for people who have commendable experience in dealing with real estate transactions like the commercial real estate brokers, agents, commercial real estate advisors. They usually work on fixed rates of commission and help people in the process of buying and selling of properties or finding the best commercial real estate loans in the market. This group also includes the asset management companies who offer to run the day-to-day operations of a property in exchange for a fixed percentage of rents derived from the property.
#4 – Ancillary real estate income
This method of making money offers to captivate the small businesses that surround a real estate property like – having vending machines in the commercial real estate space, provision of laundry services in multi-family properties, provision of cleaning and maintenance services to various housing units and so on.
As long as there are properties, there is scope for such mini businesses which thrive on making these properties easier to use and operate or live in.
Of the above, the easiest and in fact, the truest form of real estate investing happened when an investor tries to generate revenue from cash flow income or rental income. It has been around since the real estate investing came into existence, and it will stick along in the future too.
Bottom-line: Real estate investing by way of generating revenue from rental income is your safest and the most lucrative bet for entering the investing game.
Moving on, here are the most popular ways to begin investing in real estate.
Here’s how to invest in real estate.
#1 – Residential real estate investing
Residential real estate investing is all about buying properties that are suitable for individuals or families to live in and rent them out on leases or monthly rental income. This type of investing can be very lucrative and the best part about such investments is that due to a high vacancy rates, you always have a chance to upgrade the rental prices of your property from time to time based on the changing market rates.
#2 – Commercial real estate investing
Commercial real estate investing is about buying commercial spaces and renting them out to small to big businesses that want to carry on their operations in your space.
Commercial real estate investing can be very lucrative as there are always businesses looking out for better spaces to operate from. Since the lease periods in these cases are long term, there’s a locked-in rates system which will prevent you from charging higher rates on the property in case of increased demand in the market.
However, this could also work in your advantage when the demand for commercial spaces hits low in your locality, but your tenant is still forced to pay the same prices agreed upon at the time of entering into a long term lease.
#3 – Retail real estate investing
Retail real estate investing refers to investing in strip malls, shopping malls or large shopping centers having clients or tenants who want to run their businesses like – hair salons, parlors, massage centers, home shopping centers, restaurants, cafés, fast-food chains, and other similar retail nature shops.
In these cases, the tenants are required to pay a percentage of their monthly sales as an incentive to the owners, which is over and above the basic rent cost, in order for the owner to keep putting in genuine efforts in making the rental space look beautiful and attractive as such retail shops thrive on walk-in customers.
#4 – Industrial real estate investing
Industrial real estate investing is when an investor rents out properties for businesses to carry on their activities which are more industrial in nature like – manufacturing units, distribution centers, storage and warehousing facilities, assembling units, dispatch centers and so on.
These spaces as a rule of thumb need to be spacious and have facilities like huge electricity supply or continuous water supply and the like depending on the nature of the industrial business your prospective tenants may be dealing in.
Sometimes, investors may be interested in investing in properties that are more of a mix of all the categories above or a combination of two to three types, with a commercial space in the ground floor, a retail shopping mall in the first and second floor and multi-family space in the third floor. Finding such properties which shall suit more than one type of investing, is however a challenge.
So, these are some of the ways through which one can venture into the business of real estate investing. Remember that the real estate investing game is so much more than this and you should keep learning as you go along.
Keep your efforts persistent and remember that you will not see everything through on day 1 of your investing.
Good things take good time and to go from a beginner to a savvy commercial real estate investor, you’ll need a lot more experience and exposure, beginning with the first step you take towards investing – so, begin now.