Real estate investing can be difficult to grasp, whether it’s for your first time or your tenth time.
It’s very easy to get lost in all the theories, numbers, and myths that surround the topic.
If you’re new to real estate investing, we’ve got you covered.
In this blog, everything you need to know about real estate investing is discussed, including investment property types, how cash flow works in real estate, what type of real estate investor you are, and whether or not it’s better to buy new or used property.
Investment property types
There are three main types of investment property that top real estate companies usually target these include:
1. Residential rental property
This is the most common type of investment property, and it’s usually a house or apartment that you rent out to tenants. The goal is to make a profit on the rent you collect from your tenants.
2. Commercial rental property
This is similar to residential rental property, except you’re renting out commercial space instead of residential space. For example, if you own a strip mall with several storefronts for rent, this would be considered commercial rental property.
3. Vacation rental property
This is another type of real estate that can be very profitable if done right. In this case, you’re renting out someone else’s home or cabin on Airbnb or other vacation rental sites when they aren’t using it themselves.
You may even be able to find deals on foreclosed homes, which can be very lucrative in areas where people are struggling financially or where developers are buying up lots and selling them off at a discount after they’ve been foreclosed on or sold at auction.
How cash flow works in real estate
Cash flow is the difference between your income and expenses. If your expenses are greater than your income, you have a negative cash flow — and that means you’re losing money on that property.
The goal with the real estate investment proposal should be positive cash flow, which means that you earn more than enough from the rent payments to cover all expenses, including mortgage payments.
The easiest way to judge whether or not a property will provide positive cash flow is by looking at its income potential compared to its expenses. If the gross income (rents) covers all of the expenses — including mortgage payments — then it will produce positive cash flow at current rents and prices for the area.
Is it better to buy a new or used property?
When it comes to real estate investing, there’s no clear answer as to whether buying new or used is better. It depends on the location and condition of the property in question. Newer buildings typically have more amenities, but if they’re in an area with a lot of development going on, they can lose their value quickly as newer properties come online nearby.
Used properties may be cheaper in price but may also face higher maintenance costs if they need repairs down the road.
The two ways to make money in real estate
The two ways to make money in real estate are by owning a property and renting it out or buying properties and selling them for more money than you paid for them. The first way is called rental income, and the second way is called appreciation.
You can earn rental income in two ways: by owning properties that generate their own income (like apartment buildings) or by owning properties that are rented out to individual tenants.
You can earn appreciation by buying and selling single-family homes, condos, commercial buildings, or other types of residential or commercial real estate. The most common kind of investment property people buy and sell is single-family homes.
How to evaluate and purchase a property
Once you’ve decided on your strategy and figured out how much money you want to invest, it’s time to look for properties. A good place to start is with the bank’s foreclosure list. Banks typically sell homes for less than what they’re worth because they want to unload them quickly. If you act fast enough, you may find a deal that could earn you thousands of dollars in profit.
Pro Tip: Know what other areas are selling for before making an offer on any house. Make sure there’s demand in the area, and that other houses are selling quickly before deciding whether or not to buy a particular property.
You may also want to consider buying foreclosed homes that have been taken back by mortgage companies because of defaulted payments or because the homeowner stopped paying their mortgage altogether (also known as “strategic default”).
Don’t be afraid to get into the real estate business and live life to the fullest. A real estate is a good option for someone just starting out. There are plenty of ways to invest in real estate, and there are a variety of good reasons why you might want to do so. You will want to start with an attitude of learning as much as possible about what it takes to make money in real estate.