Investing in real estate is one of the oldest forms of investing, having been around since the early days of human civilization. Predating modern stock markets, real estate is one of the five basic asset classes that every investor should seriously consider adding to his or her portfolio for the unique cash flow, liquidity, profitability, tax, and diversification benefits it offers. In this introductory guide, we'll walk you through the basics of real estate investing, and discuss the different ways you might acquire or take ownership in real estate investments.
What Is Real Estate Investing?
Real estate investing is a broad category of operating, investing, and financial activities centered around making money from tangible property or cash flows somehow tied to a tangible property.
There are four main ways to make money in real estate:
Real Estate Appreciation: This is when the property increases in value. This may be due to a change in the real estate market that increases demand for property in your area. It could use be due to upgrades you put into your real estate investment to make it more attractive to potential buyers or renters. Real estate appreciation is a tricky game, though.
Cash Flow Income (Rent): This type of real estate investment focuses on buying a real estate property, such as an apartment building, and operating it so you collect a stream of cash from rent. Cash flow income can be generated from apartment buildings, office buildings, rental houses, and more.
Real Estate Related Income: This is income generated by brokers and other industry specialists who make money through commissions from buying and selling property. It also includes real estate management companies who get to keep a percentage of rents in exchange for running the day-to-day operations of a property.
Ancillary Real Estate Investment Income: For some real estate investments, this can be a huge source of profit. Ancillary real estate investment income includes things like vending machines in office buildings or laundry facilities in low-rent apartments. In effect, they serve as mini-businesses within a bigger real estate investment, letting you make money from a semi-captive collection of customers. https://www.thebalance.com/investing-in-real-estate-4073643