Three Main Uses Provides Income Capital Appreciation Leverage

What is it?
When you purchase a home the first thing you look at is the design and layout. But looking at the house as an investment could prove very lucrative years down the road. For a large portion of us, buying a home will be the largest single investment that we make in our lifetimes. Real estate investing doesn't just mean purchasing a house, it can include vacation homes, commercial properties, land (both developed and undeveloped), condominiums, along with many other possibilities.

When buying property for the purposes of investing the most important thing you should always consider is the location. Unlike other investments, real estate is dramatically affected by the condition of the immediate area where the property is located, and other local factors.

When assessing the value of real estate there are several factors that are considered. This includes the age and condition of the home, improvements that have been made, recent sales in the neighborhood, if there are any new zoning plans, etc. They look at the potential income a house may produce and how it compares to other houses in the area.

Objectives and Risks:
Real estate investing allows investors to target their objectives, for example if your objective is capital appreciation then buying a promising piece of property in a promising neighborhood will help you achieve this. On the other hand if it is income you are looking for then buying a rental building can help provide regular income.

There are significant risks in holding real estate. For example property taxes, maintenance, repairs among other costs of holding the asset. Furthermore real estate is considered to be very illiquid, if you needed to sell the property immediately it can sometimes be hard finding a buyer.

How to Buy or Sell it:
Real estate is almost exclusively bought through real estate agents or broker, they are usually compensate as a percentage of the purchase price of the property. Real estate can also be purchased directly from the owner without assistance of a third party. If buying property is too expensive, then try using REITs, which will be discussed on the next page.

Strengths:

whether or not your objective is income or capital appreciation real estate investing has the ability to achieve either. mortgages allow you to borrow against the property up to three times the value, this can dramatically increase an investors leverage. Remember that you typically need a 5% down payment first.

Weaknesses:

selling property quickly can be a problem. there are significant holding costs, especially if you are not residing in it. Examples are property tax, insurance, maintenance, etc.

Next: 17. Real Estate Investment Trust - REIT