Land along with any permanent improvements attached to it is termed real estate. It is a form of real property that includes things that are permanently attached to the land, such as vehicles, boats, jewelry, furniture, etc. They should not be mistaken as personal property. Buying a rental property is a good long term investment plan. Real estate can be categorized into five categories, namely residential, commercial, industrial, raw land, and special use.
Types of Real Estate
- Commercial Real Estate: This includes properties that are exclusively used for business purposes, such as grocery stores, shopping centers, restaurants, gas stations, hotels, and offices.
- Residential Real Estate: This contains properties that are used for residential purposes, such as duplexes, townhouses, and cooperatives.
- Industrial Real Estate: This type of real estate contains properties that are solely used for production, manufacturing, storage, research, and development, such as factories, warehouses, and power plants.
- Land: This includes properties that are not yet developed, unoccupied land, and agricultural land.
- Special Use: This consists of properties such as libraries, parks, places of worship, and other properties used by the public.
Work of Real Estate
Real estate is a brokerage firm that consists of a team of real estate agents who are commonly known as realtors. They mainly act as a medium between buyers and sellers of properties. They usually represent either party and cut out the best deal possible for properties.
Working as a real estate agent can be financially rewarding, but it is not an easy job as it requires keeping up with the business, handling difficult paperwork, providing customer service in need, tracking leads, and much more.
Physical Characteristics of Real Estate
The land consists of three major physical characteristics that differentiate it from other assets in the economy.
While required changes can be brought inland and topographies can also be improvised as per need and desire, the geographical location of any part of the land can never be changed.
The land is substantial and eternal, thus indestructible.
No piece of land can exactly be the same. They might share similarities in physical structure, but they vary geographically.
Economic Characteristics Of Real Estate
The economic characteristics of the land determine its economic value as an investment.
Whenever any addition or alterations are made to the land or building that affects the property’s value is termed improvement.
Whenever improvements are made in private nature, they are referred to as improvements on the land. Example- Homes, fences.
Similarly, whenever improvements are made in public nature, they are termed as improvements to the land. Example: sidewalks and sewer systems.
2. Saturation of Investment
After any land is improved, the total capital and labor used in improvising the building represent a certain fixed investment.
Even if the building gets demolished in the future, the improvements like electricity, water, drainage, and sewer systems are supposed to be permanent, as they can’t be removed physically by any means.
Location is a major factor. It has a major contribution to the economy. Real estate is dramatically affected by property location. It is decided by the factors like convenience, history, and reputation, which further decide people’s choices and tastes regarding the area. It is considered one of the most important economic characteristics of the land. For a deeper understanding of how location impacts property values and investment opportunities, real estate investor websites offer valuable resources and analyses.
3 Simple Ways to Invest in Real Estate
1. Rental properties
Owning rental properties increases the chances of great profit as the required renovations and management are done by the owning individual. However, it requires capital to cover finance upfront maintenance costs and vacant months.
2. Real Estate Investment Groups (REIGs)
If you want to own rental properties but do not want to go through the hassle of running them, then REIGs would b the preferred choice you are looking for, but in addition, it would require a capital cushion and financial access.
REIGs are like small mutual funds that invest in rental properties. Typical investment groups consist of companies that buy as well as build sets of apartment blocks or condos, which are eventually allowed to be purchased by investors through the company, hence thereby joining the group.
The lease of a standard real estate investment group is in the investor’s name. All of the units contribute a portion of the rent to take care of the pool during occasional vacancies.
Because of this, you will continue to receive an amount even if your unit is vacant. As long as the vacancy rates for the pool units don’t spike too high, the income will be consistent.
3. Real Estate Investment Trusts (REITs)
It is best for people who are looking forward to building a portfolio of real estate without actually experiencing traditional real estate transactions.
REITs are created when investors’ money is used by corporators for operating income properties. REITs are bought and sold like any other stock.
The corporation is accountable for paying ninety percent of its taxable profits to maintain REITs status in the form of dividends.
Corporations pay ninety percent of their taxable profits to maintain the status of REITs which exempt them from paying corporate income tax.
REITs are exchange-traded trusts, so they are considered highly liquid. You don’t need the help of any real estate agent to cash out your investment. They are considered a more formalized version of a real estate investment group.
Buying and owning properties are part of an investment strategy that is satisfying and profitable at the same time. Striving real estate owners use leverage to buy a property by paying a portion of the total cost upfront and then paying the rest amount with interest in due time.
Investing through a mortgage generally requires a twenty-five percent down payment. In certain cases, you would be eligible to buy the entire property by paying only a five percent down payment.
While buying an investment property, it is very important to know where to start. But you can simply arrive at an answer by multiplying your usable equity by four, which means $200,000 means your maximum purchase price for an investment property will be $800,000. Let’s have a look at how to use equity to purchase an investment property.
People who buy undervalued real estate, make required renovations and then sell it also takes home a good income. Real estate is complicated but worth the time. With proper experience and ideas, you will be able to build a successful income in real estate.