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How Real Estate Investing Works: Infographic

If you’re looking for an easy and reliable way to accelerate your retirement, then you really ought to consider becoming a landlord. Right now, more than 30% of US homes are currently rented and demand for quality rental properties is only predicted to grow in the coming months.  Since the market is still saturated with foreclosures, there’s never been a better time for new investors to add one of these steady and dependable sources of income to their portfolio.

Although it sounds complicated, converting a foreclosure into a rental property is much simpler than it seems. Anyone, even novice investors, can go from “looking” to “leasing” in three months or less. You just need to get familiar with the process. Check out our new infographic to see exactly how it’s done.

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How Real Estate Investing Works

After seeing all of the benefits that come with real estate investing, you may have decided that it might be right for you—but how exactly does real estate investment work? It doesn’t require any special license or degree. It’s also not only for the uber-rich or seasoned investment veterans. Anyone with the right knowledge and due diligence can invest in real estate. So, let’s start with the right knowledge about how real estate investment works:  

You Decide Your Investment Arrangement

The first step to real estate investing is the right investment arrangement for you depends on whether you want to be an active or a passive investor. An active individual investor owns and manages the property (including residents, maintenance, paying property taxes, insurance, or debts). With this arrangement comes more risk and responsibility, but also more independence and profit potential. A passive investor isn’t actively participating in the management of the property. Instead, they invest with an investment company, real estate fund, or real estate investment trust (REIT), who acts as the active investor and pays the passive investor a return usually in the form of an interest payment or dividend. The arrangement you choose can also determine the available initial capital investment you can make which takes us to step 2.  

You Decide The Type of Real Estate You Want to Invest In

The type of real estate you invest in is often determined by your initial available capital. Keep in mind that under traditional financing plans, you need to be able to put down around 20-30% of the sales price of the property. Investments that require less upfront capital investment include residential real estate (single family homes, townhomes, or apartment communities) or raw land (including farmland or vacant lots). Investments that require more initial capital investment include commercial real estate (offices, retail space, hotels, or malls) or industrial real estate (warehouses or storage facilities; or large apartment communities). Again, your investment arrangement and available capital can determine the type of real estate you invest in. Another factor to consider when selecting the property type is what kind of income you wish to earn from the investment. 

You Decide What Type of Income You Wish to Gain from Your Investment

  • Rental income.

Rental property can be land, residential, or commercial. The owner leases the property to a tenant and the property owner experiences positive cash flow when the rent is more than the monthly or annual expenses for the property. 

  • Property appreciation 

Many investors rely on a property’s value as their method of investing in real estate. Buying property that needs improvements at a discount, adding value through renovations, and selling the property at a higher value is one way to achieve this. This method of fixing and flipping property is an active investment strategy but can be quite lucrative if done well. Relying on property value or appreciation is a higher-risk investment strategy. In a strong market, this method can work well. However, valuations are vulnerable to market conditions, which can positively or negatively impact real estate values at any given time. 

  • Wholesaling 

Wholesaling is a strategy for more seasoned investors. While real-estate tends to be a more long-term investment strategy, wholesalers make short-term profit but buying property and then assigning the contract to a third-party buyer at a higher price. 

  • Mortgage interest

Another income strategy for more seasoned investors is where private parties finance money (at a higher rate) to others to purchase real estate. The investor/lender earns a return through interest. The investor can use this mortgage interest as a way to invest in real estate such as through real estate investment trusts (REITs). 

Decide If You Want To Work With An Agent, A Platform, or A Wholesaler, or On Your Own

How will you find that perfect investment property? You need to decide if you want to go out on your own or use third party support. Real estate agents are a traditional approach, but the agent you’d select to help you find your home may not necessarily be the right agent to find the right investment property. Find an agent that has experience with investors and who will help you select the right property by region, price point, potential resident pools, and appreciation potential. Online real estate platforms are an alternative option for investors seeking more autonomy, but it’s advisable for first-time investors to work with experienced agents. If you’re looking for something in-between, a wholesaler may be a good option. The wholesaler puts properties under contract then makes their profit by transferring the contract to you at a higher price. 

You Carefully Select Your Investment!

You’ve reached the final step in how real estate investing works. Whether selecting your investment property on your own or through the support of a third-party agent or wholesaler—be sure to do your due diligence and invest wisely. If you want to learn about commercial vs residential real estate investing or single family vs multifamily real estate investing, get in touch with Lifestyles Unlimited today.

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