Real Estate Investing for Beginners

By Eddie V. — Published March 08, 2018

Real Estate Investing for Beginners

Buying and investing in the real estate market is quite a complex endeavor when compared to the stocks and bonds market. It is also not as simple a notion as finding a new home. Real estate has risen in popularity over the recent years as a solid investment option. A lot of changes have taken place in the market place that have made it more complicated than simple ownership of property. Read on further to know more about real estates as an investment tool.

Rental properties and real estate trading groups
Similar to the age-old practice of land ownership, a person buys a property and rents it out. The owner then collects a monthly rent from the tenants. Apart from the mortgage, loan payments, and property taxes, the landlord is also responsible for the maintenance of the property. Hence, landlords charge enough rent in order to make up for these expenditures. One may also choose to charge extra and earn a monthly profit. However, a safe long-term practice is to not do so as when the loans and mortgages are paid for, the maximum portion of the rent then turns to profit. The value of properties fluctuates according to infrastructural developments and market conditions. The owner of a property might discover that the net value of his/her premises is much higher than the original price. The landlord can then choose to sell the house for a net profit. Consequently, the value of a house can also decrease, but as long as there is a strong source of rent, making a long-term profit will not be too difficult.

While this may sound like a safe and stable investment option, there are certain risks involved. Having an unstable tenant might result in property damages, non-payment of rents or inconvenience to the neighbors. Due to locational disadvantages, one might find no tenant at all. The property then sucks in capital instead of generating it. Picking the right kind of property in areas with low vacancy rates is the key to acquiring a proper rentable house. Owning a property requires a lot of personal time and investment as compared to owning a stock or a bond. Many real estate traders choose to invest in the interiors of the property, thus raising its value and appreciation. It can then be sold or rented out at a higher price.

Real estate trading groups operate in a fashion similar to mutual funds. If you want to avoid the regular hassle of being a landlord, then this option might be for you. This is how it works. A group or a company buys or builds a set of apartments or properties. It then provides a counter for investors to buy the properties through them. The mutual investors thus enter into a group. One can own single or multiple properties from the options available. It is the company that manages the premises, advertises for vacancies, and interviews tenants. In exchange for these services, the company charges a monthly percentage of the rent.

Providing leverage
Most mortgages require a 25% percent down payment. This results in the complete ownership of the properties at a fraction of the price. The routine payment of mortgage ensures the full payment of the property. However, investors and landlords can choose to take out a second mortgage on their current property and make payments for other properties. They can then wait for an opportunity to sell them at a profit or give them out to tenants.

Some parting advice…
One never owns a real estate in one’s original name. To mitigate risk, one makes use of legal bodies like limited liability companies and limited partnerships. This way, any incipient lawsuits on your current property do not bleed into your personal assets. The real estate market is vast and diverse. There are several options to explore and play around with one’s property. Options like REITs and property-flipping have not been considered here as they are not recommended options for beginners. One must carefully assess one’s sources of capital and analyze potential risks before making any kind of investments in properties.

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