How to Make Money from Real Estate Investment

As an investor seeking more ways to invest your money, the next profitable investment you may want to consider after stock trading or securities trading is real estate. Real estate investment is a very lucrative business, and as an investor, you can be sure of good returns. Like every other investment, the overall goal of investing in real estate is to create wealth, and with all investments come specific risks. Real estate investment is a long-term investment that yields high returns. To reap the benefits, your patient, committed, and have lots of money to invest. Basically, an investor buys a multi-unit building or apartment or a single-family home and renovates or manages it before selling it out or putting it up for rent. Even if you do not have lots of money to acquire buildings, there are other ways you can still invest in real estate and make a cool profit.

Real Estate Investment

Real estate investment(REI) can be a fun and rewarding enterprise as it brings you closer to the demand of the ever-growing human population in seeking out spaces and accommodation. The real estate investment trail is capital dependent, time-consuming, risky and energy reliant in some cases but eventually pays off investors with corresponding yield and interest. It is required of investors to learn about the problems and controls attached to the real estate enterprise, the where who and what to invest in, how to invest and manage the investment- these are some of the key values that both the novice and expert real estate investor should know and often review.

Types of Real Estate Investments

Real estate is a broad term that must be narrowed down into single or multiple entities. Same applies for real estate investment, as an investor you must study the market to know which type of real estate you would like to invest in. Each class of real estate investment has its unique qualities which include its type of returns, risk rates, cash flow circles, lending traditions, and investment terms. The purpose of knowing the different classes of real estate investment is to enable channel your time, efforts, and money in the right path. You may be interested in one or all, but above all, know what is expected in each class and follow duly. Real estate investment can be classified into five major types which are namely;

●     Residential real estate investment; involves structures such as houses (townhouses & vacation houses) and apartment buildings that are put up on a lease. The parties involved would have to sign a lease agreement indicating the duration the occupants are allowed to remain there. Usually, residential leases in the U.S. come with a twelve-month duration.

●     Commercial real estate investment; involves building structures such as office complexes or workspaces. Office spaces are leased out to individual business owners or companies. As a commercial real estate investor you have the liberty of involving multi-year leases in the agreement. The reason for this is to have a stable cash flow regardless of the operations of the company.

●     Retail real estate investment; this involves building structures such as retail stores, malls, and strip malls. Asides the rental charges, the landlord is entitled to a percentage of sales generated by the tenant (not fixed).

●     Industrial real estate investment; involves the leasing of industrial warehouses, storage units, etc. It basically involves leasing a property for the purpose of generating revenue from individuals or businesses who would like to use the space temporarily for manufacturing, production, and distribution purposes.  This kind of real estate investment often has a significant fee and service income channels.

●     Mixed-Use; this practice has to do with having a large building unit or multiple units to combine the other mentioned structure. As an investor, you can purchase a building or construct a building and lease different parts of it for commercial, retail or industrial purposes. The advantage of this type of real estate investment is that it helps with diversifying your portfolio and minimizing risks.

Single Home Vs Condo Investment

As a real estate investor, you would most likely come to realize that residential real estate is on higher demand compared to retail or industrial because there are lots of people looking to get buy or rent a house daily. Still, when it comes down to residential real estate, some investors would rather invest in single homes compared to condos, and vice-versa. No real estate investment is better than the other they may have different preferences but surely profitable in their own ways. All real estate investment properties are guided by certain factors which include location, market, annual ROI (return on investment), and any other factors likely to surface. On one hand, condos are more likely to slowly appreciate compared to single-homes, thereby, making them a better choice of monthly income. Also, condos are mostly location-friendly meaning they can be found in favorable locations. However, a major con for condo investments is the presence of unstable condo fees due to lower repair and maintenance costs compared to a single home.

What to look for before buying an Investment Property

When buying an investment property, rather than jump at any available offer, it is best to consider other factors like the location, building value, and your budget. Different investors have different tastes and would likely go for what suits them, but it is always important to note what kind of real estate investment would bring in steady returns in the long run. Individual tastes may be good if you are considering buying a house or property for personal use and not for rent. But if considering rent or lease on a property then it is best to look out for what the buyer may like.

The next thing to consider when buying an investment property is to consider the costs of repairs. As an investor, you can increase the value of a building by making necessary repairs and renovations before renting it out or leasing it. Be sure to stick to the building that is within your budget. Some structures are in great locations but have high repair costs, you can either take the risk and give some much money into fixing the building with hopes that you would get your money back in the long run or simply look for another building within your budget. Distress real estate sales are quite common in the days, however, relatively cheap prices are not necessarily the best option for buying a real estate.

When looking for an investment property to buy into, many options are available including internet searches (Auction.com, LoopNet, and Craigslist), however, it is advisable to go the conventional way by driving around the neighborhood to single out available properties that may not be listed on internet sales. Another way would be to build a network within the real estate industry, that way you can quickly know what properties are available for sale with their pros and cons directly from the experts.

Tips:

❖    It is preferable to not to buy an investment real estate in your name directly the major reason for this is personal asset protection.

❖    Involve a legal body such as Limited Partnership (LP) or Limited Liability Company (LLC) before making an investment real estate purchase.

Now, if you are interested in real estate investments, but do not have sufficient funds to literally purchase a land and construct your own building, not to worry there are other ways you can invest in real estate without necessarily owning a single building. There is a body called the Real Estate Investment Trust (REIT) also known as real estate stock which lets you invest by buying into shares of a firm that owns real estate properties. Firms that own real estate properties go public and allow investors to buy their shares in a publicly-traded REIT. The major benefit of this is that you partake in the real estate ownership without having to do all the dirty work. Some REITs investment allows you the opportunity of liquidity and diversity. Just like stock investments, investing through REITs allows the investor to easily and quickly trade shares at any time. The financial risk or investing through REITs is usually low. 

How to make money off real estate investments

Everything else stated comes down to this, ‘how to make money off real estate investments’. As an investor, there are three likely ways you can earn money off real estate investments

●     Rental income got from leased properties

●     Increase in property value over time (buy, manage, sell).

●     A percentage of tenant’s annual revenue depending on the nature of business and its yearly yields (industrial or retail real estate).

Other ways are trading of real estate shares through REITs or through tax lien certificates.

Rental Income

This has to be one of the easiest ways of making money off real estate investments. This has to do with basically putting up your property for rent or a lease.  Rental income allows the landlord to collect rents from the tenant once they have come to a lease agreement. Rental charges cover the main fee and extra charges for repairs and maintenance of the property. Rental income can be calculated by using the tenant’s capitalization rate to evaluate the total rental cost. The cap rates state the overall revenue of a commercial real or industrial real estate investment. The con to this, however, is that the rental income may be determined by the net worth of the commercial real estate investment which can become unstable as the economy rises or falls. For residential purposes, rental income is fixed based on the investor's preferences which will adhere to the general rental guidelines.

Increase in Property Value

Real estate investment property is slow in value appreciation, and are mostly determined by the current economic state of the country. If the dollar loses its value due to inflation, then the chances of property value would not be feasible. However, investors still take great advantage of this opportunity by selling off or renting out properties at a higher rate compared to the actual amount they purchased it. Another method real estate investors can gain extra profit from property value in the presence or absence of inflation is by cyclically adjusting cap rate purchases. This means that investors set rental income for commercial real estate based on the expected future valuation of the company

Extra profit and percentage from real estate business operations

Here the landlord and tenant come to an agreement on the expected percentage that would be paid from business operations based on the business annual returns.  The landlord can also make money off the business operations by providing special services to the business customers independent of the business owners. For example, the landlord can decide to make extra money by setting up a time-controlled vacuum cleaner if he owns a carwash or setting up vending machines in commercial real estate building for extra profit.

Real Estate Pros and cons: Where & How to invest

●     Starting strong in the REI is the availability of capital. The various forms of enterprise in the real estate business may require large capital, mortgage plans (borrowing money from financial institutions to pay for a property with a payback plan at interest rate) or the use of fund reserves (retirees, investment bankers, etc.). However, the range and means of Investment depend on the form of REI an investor embarks on.

●     It is always helpful to find articles such as this, real-life agents/experts, investors that can give helpful insights into what REI is.

●     Getting a team of expert to work along with is also a plus in REI

Other Investments related to Real Estate Investment

How capital can be invested in real estate includes:

- Personal investments: This covers being a Landlord and also form of property investment known as 'hacking', and 'flipping'

The landlord is one who owns a building, he is responsible for sale or rent of property units he has bought or built. Properties units can be converted or renovated at the investor's discretion & risk. But most times it is renovation cost can be capital intensive & loss Intensive. Site, size, and quality play a key role here too. Building units for rent tends to pay off in the long run as income generated from the rents goes into capital for another investment. Buying a property for rent is a steady form of investment, unlike the renovation strategy to increase the value which is time and capital consuming. This is commonly known as the fixer-upper or flipping strategy.

 Hacking is a form of REI which involves the taking of mortgage to secure property units within which the investor also resides (cutting the cost of living expense and maintenance) but rents out other units to pay for a mortgage at an interest rate and capital raised can also be used for maintenance of the building.

- Joint/Group Investment:

Real Estate Investment Groups(REIGs): Real estate investment groups (REIGs) direct the majority of their business on investing in real estate in search of returns and profits. They give slots within company or group operations for partnership through investment. REIGs is Ideal for people who want to own rental real estate without the hassles of running it. REIGs often decide to either finance constructions, buy, rent, renovate, or sell off properties. Usually, they buy out a property and sell units to investors while taking responsibility for the administration and maintenance of the property. REIGs usually have a large pool of capital resources due to the broad partners they have on board. The downside to investing with such groups is that they decide the percentage of dividend that is released to their investors (referred to as shareholders).

Real Estate Investment Trusts (REITs)

REITs are a solid investment for stock market investors who desire regular income. They are essentially dividend-paying stocks (bought and sold on the exchange market) where the leverage associated with traditional rental real estate does not apply because stocks core holdings involve commercial real estate properties with long-term, cash producing leases. It is a form-fitted for persons with ready investment capital who wants 'portfolio' exposure to real estate without the traditional real estate transaction. REITs are of two categories

- Equity REITs: These corporations /companies are more traditional, in that they represent ownership in real estate that own buildings.

-Mortgage REITs: provide financing for real estate and dabble in mortgage-backed securities (MBS). This also offers views and insight into REI by focusing on the income from mortgage financing of real estate.

REITs differ from REIGs in status because REITs are a more formal way of investing in real estate. Any REI corporation that pays out 90% of its taxable profits in the form of dividends assumes the status of a REIT. By doing this, REITs avoid paying corporate income tax, whereas an REIG would be taxed on its profits and then have to decide whether or not to distribute its after-tax profits as dividends. Hence, real estate investment groups qualify for the real estate investment trust (REIT) status.

 Conclusion

Investing in Real Estate is a big deal. For whichever form of REI, you intend to embark on corresponding capital source creativity, knowledge of local investing markets, a team of expert’s opinions, reports or results, coupled with simplicity with elegance are very important keys to consider. No matter the form of investment every REI enterprise always holds profit and potentials within whether market conditions are favourable or not.