Simply put, when investing in real estate, the goal is to put money to work today and allow it to increase so that you have more money in the future. The profit or “return” you make on your real estate investments must be enough to cover the risk you take, taxes you pay and the costs of owning the real estate investment such as property tax, utilities and regular maintenance.
Real estate investing really can be as conceptually simple as playing monopoly when you understand the basic factors of the investment, economics and risk.
To make good in real estate, you buy properties, avoid bankruptcy and generate rent so that you can buy even more properties. If you make a mistake, consequences can range from minor inconveniences to major disasters. You could even find yourself broke or worse.
3 Ways Real Estate Investors Make Money
When you invest in real estate, there are several ways you can make money.
Real Estate Appreciation
This typically happens when the property increases in value. Factors that can increase your property value could be from a supply and demand stand point or with a sudden increase in development around the property, be it a major shopping mall built next door or an IT Tech Park and business center that may have sprung up. All this and more upgrades you put into your real estate investment make it more attractive to potential buyers or tenants. Real estate appreciation is a tricky game.
This type of real estate investment focuses on buying a real estate property, such as an apartment or commercial office space and renting it out. This way, you collect a steady inflow of income from rent.
Real Estate Trading
This is income generated by “specialists” in the real estate industry such as real estate brokers, who make money through commissions from buying and selling property or even property management companies who get to keep a percentage of rents in exchange for running the day-to-day operations of a property.
Which Type of Real Estate Investment Should You Make?
When you are ready to start the process of real estate investing, you’ll want to decide which of the real estate investment types is most appropriate for you. End of the day, it purely depends on whether the property is for long term investment or for dwelling or from cash flow.