Over the past 50 years, buying a house has become more than just having a place to live. It has become a major form of investment among businessmen. If you invest in real estate and handle all the responsibilities that come with, you are going to gain big time. However, investing in real estate is a lot more complicated than investing in stocks and bonds, this article will introduce you to ways you can easily invest in real estate and fatten your bank account over the long term.
Basic Rental Properties
In this type of investment, a person will buy a house and rent it out to a tenant. The monthly expenses and all the incidental costs will be taken care of by the owner of the house, the landlord. The landlord tries as much as possible to recover this expense from the rent he charges from the tenants every month.
Usually, the landlord makes little or no profit from the monthly rent paid to him after deducting the mortgage, taxes and repair costs. However, in the long run after the loan is paid in full, most part of the rent become profit. Also, the house appreciates over the years, which makes the landlord to gain in two ways, although the latter only materializes when the landlord sells the property.
Renting out a property may not be always profitable. There are circumstances where the house is rented out to a bad tenant who damages the property, or the property is located in an area where you do not get tenant very often or the house is left vacant. These situations can cause the landlord to be struggling with paying the mortgage himself every month. To gain the most out of rental properties, one should make thorough research about the market, the locations to buy a house in, and the type of tenants you should rent out to.
Real Estate Investment Groups
Here, a person buys a house or a unit among a set of apartment blocks and condos through a company. The company is responsible for the management of the property and are entitled to a percentage of the rent. However, the investor will be responsible for paying the mortgage. How well you do, usually depends on the quality of the group you joined, that is the company managing the property.
This type of investment is for people who want to invest in real estate but do not want to take up the responsibilities that come with it. In the simplest sense, it is having a rental property and letting somebody else take care of it for you for a percentage of the rent.
Real Estate Trading
This is entirely another side to real estate investment. It is different from the investment where a property is bought and held for a long time. Here the property is bought and sold in the shortest possible time, depending on the market. This is also called property flipping.
Property flippers come in two forms. The first one buys a property and sells it for a profit. In the second class of flippers, a property is bought for a reasonable price and renovated in order to increase its value – this takes more time than the former.
Real Estate Investment Trust (REIT) is a form of real estate investment where a corporation or trust uses investor’s money to invest into rental properties. Unlike the aforementioned types, REITs investors do not only invest into residential places, but also properties like malls and offices.
REITs do not pay corporate income tax, this is because it pays out 90% of its taxable profits as dividends. Unlike a regular company, who must pay income tax.
Except REITs, investing in real estate gives you leverage. Unlike stock market investment where the full value of the stock must be paid for at the time of placing the order, a real estate investor controls a property for only paying a fraction of its full value.
Depending on where you live, sometimes down payments can be as low as 5%, although the full amount would be paid for eventually.