Real Estate Investing for Beginners

Simply stated, the profit, or return, you make on your investments must be enough to cover the risk you take, taxes you pay, and the other costs of owning the real estate, such as utilities, regular maintenance, and insurance. However, one of the advantages of owning real estate is that you can deduct your expenses against your income to take advantage

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Real estate investing for the beginner can really be as conceptually simple as playing Monopoly once you understand the basic factors of the investment, economics, and risk. To win, you buy properties, avoid bankruptcy, and generate rent so that you can buy even more properties. However, keep in mind that "simple" doesn't mean "easy." If you make a mistake, the consequences can range from minor inconveniences to major disasters.

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4 Ways to Make Money Investing in Real Estate

When you invest in real estate, there are several ways you can make money:

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Real Estate Appreciation

This occurs when a property increases in value due to a change in the real estate market. For example, the land around your property could become scarcer or busier, like when a major shopping center is built nearby. Or you could have made upgrades to the property that make it more attractive to potential buyers. Real estate appreciation is a tricky game because it is somewhat unpredictable, making it riskier than investing for cash flow income.

 

Cash Flow Income

This type of real estate investment focuses on buying a real estate property, such as an apartment building, and operating it, so you collect a stream of cash from tenant rent. Cash flow income can be generated by other types of real estate besides apartment buildings, such as storage units, office buildings, retail establishments, and rental houses.

 

Real Estate Related Income

This income is generated by specialists in the real estate industry, such as real estate brokers, who make money from commissions on properties they have helped a client buy or sell, or real estate management companies, which get to keep a percentage of rents in exchange for running the day-to-day operations of a property. A hotel management company might keep 15% of a hotel's sales for taking care of the day-to-day operations, such as hiring maids, running the front desk, mowing the lawn, and washing the towels.

 

Ancillary Real Estate Investment Income

For some real estate investments, this can be a huge source of profit. Ancillary real estate investment income includes things such as vending machines in office buildings or laundry facilities in rental apartment complexes. In effect, they serve as mini businesses within a bigger real estate investment, letting you make money from a semi-captive collection of customers.

 

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​​Panacea does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.