This is a continuation of last week’s part 1 overview of real estate investing basics for beginners. We have looked at several types of real estate investments. However, as you might have guessed, we have only scratched the surface. Within these examples there are countless variations of real estate investments.
As with any investment, there is much potential with real estate, but this does not mean it is an assured gain. As with any investment, make careful choices and weigh out the costs and benefits of your actions before diving in.
Real estate is a scary investment for a lot of people. And it can be if you only think in terms of owning a piece of property to rent out or to fix-and-flip. Here’s more examples below!
Real Estate Trading or Flipping
Real estate traders buy properties with the intention of holding them for a short period of time (often no more than three or four months) and selling them for a profit.
This technique is also called flipping properties and is based on buying properties that are either significantly undervalued or in a very hot market. This can be done in two ways:
•Buy foreclosed properties, renovate it and then selling it.
•Secure undervalued (pre-selling) properties. Wait for market price appreciation before selling.
Flipping houses is the most hands on, and potentially risky ways to invest in real estate. The two biggest issues are paying too much for the property upfront, or discovering that what you thought to be a minor repair is something much bigger.
Always check the true physical condition of the property, and have an accurate estimate of renovation costs.
Buying and earning large scale
This is a variation of rental property where you invest in office, retail or warehouse/storage property. It follows the same general pattern in property rentals. But investing in commercial property is generally more complicated and expensive than investing in real estate rentals on the residential side of things.
On the plus side, commercial real estate usually involves long-term leases. Since the property is being rented to a business, they’ll want a multiyear lease (10 or more years). This will ensure the continuity of their business.
Appreciation on the property can also be more generous than it is for residential. And the tenant often pays for the upkeep of the building, in addition to the monthly rent. Leases can also be structured to give the landlord a percentage of the profits of the business as well.
On the downside, commercial property is often subject to the business cycle. During recessions, business revenues decline, and your tenant may have difficulty paying the rent or worse, go out of business. Since commercial tenants come in all shapes and sizes, it may take months or years to find a new tenant for your property.
Become a Real Estate Entrepreneur
If you can’t afford to invest yet, then earn more. Why not be part of the industry by selling real estate properties and also learning a lot on the side? You earn by commissions, but if you save that up, you will eventually transition into real estate investing yourself!
