Many people usually think of their home, whenever they hear the term real estate investment. Real estate investment has become popular for at least 50 years. But, still to buy and own property is way more complicated than bonds and equities.
To help you better understand this type of investment, we discuss how it works.
The Basic of Rental Properties
In the simple term, this type of investment is the same as the practice of land ownership. Someone will buy a property, then rent this property to a tenant.
The owner, however, still have the responsibility to pay the taxes, mortgages, as well as, the maintenance of that property. To cover that cost, the landlord charges sufficient rent. If he or she wants to get an annual profit, then he or she charges a higher rent,
Or else, the landlord can also be patient and charge sufficient rent until the mortgage has been paid, then turn it into profit. Other than that, the landlord can also have profit once the property gets appreciated in value.
If an investor is searching for a good property, then he or she has two choices. They can research the market by himself or hire a professional. If you are one of the investors who want to get an income stream from this investment, then you need to consider the market rental rates and the property location.
The Basic of Real Estate Trading
If we compare to the rental property, real estate trading is quite wild. The comparison is similar to if we compare day traders with a buy and hold investors.
Real estate traders purchase a property intending to hold it for a short time, around three to four months, and sell it for a higher price. According to Investopedia, that technique is called flipping. With that technique, traders seek undervalued property or the ones located in a hot area.
There is a probability when a trader can’t unload a property. That can be super devastating for the traders since they usually do not prepare enough money to pay the mortgage for that property for the long term. Consequently, traders will face losses.
Besides, we also have second class property flippers. They are the people who make money through buying cheap or reasonably priced properties, then add the value by renovating that property.
After the renovation, then, the trader sells that property. With this technique, you can have a longer-term investment, depend on the improvement.