A Guide To Investing In Real Estate
Real estate may come with its share of risks. However, many are looking to add this asset class to their portfolio. Those interested in getting started in investing in real estate may appreciate the potential of high returns with this form of investment.
This may be a great time to start getting serious and learn more about real estate investments. As with any form of investment, it is important to perform due diligence and understand more about the property, any challenges and the realistic return from a type of real estate investment.
Learn more about real estate investments types and practical considerations today.
Know More About Different Types of Real Estate Investment
There are a variety of options for those looking into this type of investment. Potential investors may want to explore the following types of real estate investments.
Residential Real Estate
Are you interested in offering housing to individuals and families? Residential real estate is the area worth considering. Some of these properties, such as assisted living facilities, provide the opportunity for a service business component. Leases are generally signed for a year and investors should be aware that residential real estate is able to adjust to market changes rather quickly, when compared with other types of real estate options.
Commercial Real Estate
Is it easier to focus on professionals and build working relationships with businesses? Investors may then seek out opportunities to invest into office buildings, one form of commercial real estate. Expect for tenants to sign on for longer terms, making for more continuous cash flow. Market rates may change but an owner may be locked into earning below-market rates on longer leases.
Industrial Real Estate
There are different types of properties that fall under this category. An investor may want to investigate the possibility of owning and managing manufacturing facilities, warehouses, distribution centers, storage units and assembly plants.
Retail Real Estate
Retail real estate can offer a variety of tenants and the potential of long-term leases. Investors would be looking into ownership of shopping centers, strip malls and traditional malls. Owners may also get a specific percentage of sales from a store when offering terms. Landlords are often motivated in maintaining such properties and attracting additional shoppers to such properties.
Mixed-Use Real Estate
An investor may deal with different types of tenants with this type of real estate. Retail and office tenants may be included in a multi-story building.
Understand more about the pros and cons of each of these categories of real estate investment. Some may find themselves inclined to invest in commercial real estate after changes to tax plans. Owners may want to avoid taxation on profits through reinvestment.
Real Estate Investment Vehicles
While the act of purchasing a property and serving as a property manager (or hiring one) is a commonplace type of real estate investment, prospective investors should not feel this is their only option. Consider the following alternative real estate investment options at your fingertips.
Real Estate Investment Groups:
If the idea of being a landlord sends shivers up your spine, don’t worry, there are other investment real estate related investment vehicles that you can use to generate wealth for yourself. Real estate investment groups are one such option. Real estate investment groups are similar to other investment vehicles such as mutual funds. These types of investment vehicles are ideal for individuals who wish to own rental property but do not want to be landlords. These types of investments work when a company buys a set or apartments or condos, and then allows these blocks to be bought by investors. However, the operating company manages all of the the units, which takes care of the required maintenance and finding tenants. In exchange for these performed services, the investment company would take a percentage of the monthly rent.
Real estate has been around forever, as well as investing in real estate in Wellington or elsewhere. It is no surprise that the wizards of Wall Street have found ways to capitalize on real estate investing by turning these ideas into publicly-traded investment instruments. One such instrument is a Real Estate Investment Trust (REIT). An REIT is created when a corporation uses money from investors to purchase and operate income generating properties. REITs can be bought and sold on most major stock exchanges, just like the stock of any other company. I order for an REIT to maintain its investment status; it must pay out ninety percent of its taxable profits in the form of dividends. By adhering to this principal, REITs can avoid paying corporate income tax. A regular company’s profits would be taxed and would then decide to distribute these after tax profits in the form of dividends.
What to Do Before Purchasing Real Estate
Understand that the majority of individuals do not buy an investment under their own name. Establishing a legal entity helps limit personal liability. Options to protect personal assets include a limited liability company or limited partnership.
Be careful about the use of leverage. In a falling market, this can have serious repercussions for an investor. Learn more about using leverage to buy property and the risks associated with such an approach.
Talking Returns on Real Estate
A changing market may cause a certain amount of unpredictability when it comes to returns on this type of asset class. That being said, a 6 to 12 percent annual return has been seen with those investing in commercial property. A 4 percent return may be anticipated for those looking into residential real estate. Challenges may come up that may reduce expected returns and poor management of properties can decrease the potential for profits for investors.
Make More Money Today
There may be more than one way to make money on a real estate investment. Rental income is not the only place to generate cash flow. Some may want to take into account that the property value may appreciate, and ancillary income may provide an additional stream of income and profit. Investors may want to offer vending machines in office buildings, as one such example of an ancillary income opportunity. Additional opportunities related to simply owning and renting out units increases the potential for profit for real estate investors.
Management of the property is important to maintain decent margins. Poor management can make for additional expenses and higher turnover of tenants. In these cases, it may be months to years to find a reliable tenant, depending on factors such as the type of rental space and reviews found online. Some investors, whether in Jupiter Farms or elsewhere, may want to carefully review management companies in order to have another experienced party deal with finding tenants, selling a property or handling general operations related to the property. Even with the inherent risks, investing in real estate continues to be used to bolster portfolios.