Real estate investments are the largest asset in the world and one of the most entrepreneurial fields. Real estate investment draws people in with long-term passive income, favourable tax advantages, and positive returns on investment. Real estate is considered a low-risk investment, so people are quick to jump in with high expectations. Famous TV shows on buying properties for investments feed into the idea that real estate investment is easy and fruitful. Many people ask how to invest in real estate without fearing any chances of loss. Not all real estate investments are at low risk; you need to require specialisation in real estate skills for maximum return on investment.
Types of Real Estate
If you want to jump into this field, then you must know the different types of real estate properties zoned for specific uses.
Residential Properties
Residential real estate is a property that is zoned for specifically living-in purposes for residents. This includes single- and joint-family homes and apartment buildings.
Commercial Properties
Commercial property is zoned for businesses only, typically retail or industry. This could include office buildings, shopping malls, manufacturing sites and warehouses.
Land
Land refers to the ground surface encompassing any water, structure, plant, or minerals located on the land. It can also be zoned for commercial, residential, agricultural, industrial or any other specific local zoning.
Rental Properties
Rental properties are a good choice for people who have the patience to manage tenants. If you are investing in rental properties, it can provide regular income and potential appreciation. A rental property refers to homes or properties that are purchased by an investor and inhabited by tenants on some rental agreements or leases.
Earning Money as a Real Estate Investor
Real estate investors can earn potential money in the real estate market even during times of rising interest rates. Here are some of the ways to earn money in the real estate market:
Property Appreciation
Real estate appreciates over time; your profit comes from selling property at a higher value than its actual price. Most investors buy properties in the best neighbourhoods so their property appreciates at a higher rate in the future. Property appreciation is a long-term investment that offers a secure investment with promised profit.
House Flipping
House flipping is for people who have significant experience in real estate valuation, renovation and marketing. This process is used by investors to describe rehabbing, buying, and selling properties for profits. In this, an investor buys a property in a market with rising home values and then holds the property for a few months and resells it at a higher price to make a profit.
Real Estate Investment Trusts
If you don’t want to own property but want to have an income from the real estate market, you can invest in real estate investment trusts (REITs), which are like mutual funds for commercial real estate. It is very similar to the stock market; you will invest in the REIT, which is publicly traded. If the REIT makes money, you can earn dividends and cash out or invest again with the profit. They don’t need any large upfront investment and you can earn regular dividends. Moreover, you will not get any property appreciation benefits and also will be subject to taxes when you cash out your dividends.
Also Read: Overseas Investors Guide To Invest in Pakistans Real Estate
How To Invest in Real Estate?
Some of the most common ways include investment, homeownership, house flipping or rental properties. One type of real estate investor is a real estate wholesaler who contracts a home with a seller. After that, he will find an interested party to buy that property. Real estate wholesalers don’t do any renovations to the properties or any other additions. They generally find and then contract the distressed properties.
The most popular way of earning from investment is garnered from revenue from leases, rent or appreciation of the property values. The real estate market is expected to grow to a staggering value of US$645.40 trillion by 2025. The residential real estate market dominates with a projected market volume of US$534.40 trillion in 2025.
It is important to note that the real estate market is dramatically affected by its location and factors like employment rates, crime rates, the local economy, education and transportation facilities, property taxes, municipal services, etc.
After considering all the factors and also having sound knowledge about the real estate market, start investing in residential or commercial properties. Low growth/low capital appreciation, high fees, no tax advantages and being subject to market risk are some of the negative factors that can make it difficult for you to make a profit.
What is Real Estate Crowdfunding? Is It Risky?
Real estate crowdfunding is the way to raise money online for acquisitions from businesses, large groups of investors, and individuals. Crowdfunding is used to access capital from a group of potential investors on internet platforms and social media sites.
Compared to other forms of real estate investing, crowdfunding is riskier. Some of the projects on crowdfunding sites appear because they were unable to source funding from other traditional means. Also, many real estate crowdfunding platforms need the money of the investor to be locked up for years, making it an illiquid investment.
Understand the market dynamics and stay updated about the current valuation of property. High inflation can also lead to increased interest rates, cooling the real estate market. Please note that all the aspects we discussed were the general guidelines about investing in the real estate market, which often interact in complex ways.
Wrapping Up
Real estate investment offers significant opportunities to grow wealth through property appreciation, residential property or other new methods like crowdfunding or REITs. However, if you want to have success in this field, then you must have good knowledge of real estate. Without proper knowledge, there is a chance of challenges in the investment journey.
The new investors must have careful research, market analysis, and a clear understanding of the potential risks and profitable rewards. Moreover, it is also recommended that you have good real estate developers to get proper and accurate guidance about your valuable investments. Real estate developers will guide you thoroughly about the market trends, property valuations and investment options.
