You Can Fail In Real Estate Investment As a Beginner If You Don’t Read This!
This article is to provide you with a broad introduction to real estate investing as a beginner.
Real estate accounts for 60% of the world’s mainstream assets and a significant portion of all national, corporate and personal wealth. With that in mind, real estate investing clearly deserves consideration from any individual or business looking for asset classes in which to invest a portion of their capital.
But before you can make informed decisions about whether or not to invest in real estate, and which of the many types of real estate might make the most sense for you, you first need to understand real estate investing basics.
WHAT IS REAL ESTATE?
When they hear the term real estate, many people think of land, or homes, or other types of buildings and structures. Those are components of real estate, but they are far from a complete definition.
Here is how the Uniform Standards of Professional Appraisal Practice (USPAP), the industry guidebook for real estate appraisers, defines real estate: “An identified parcel or tract of land, including improvements, if any.”
That reference to improvements is key to your understanding of real estate, because it underscores the fact that real estate also includes anything fixed or permanently attached to the land — a far broader category than most people realize.
Improvements, as understood in the real estate context, can include a home, store, office building or other types of structure built on the land. But it can also refer to anything else permanently affixed to that property, including fences, roads, streams, trees and even the utility systems on the land.
Finally, real estate can also include several rights inherent to a piece of property — such as air rights, water rights and the mineral rights to any natural resources in the ground under the land.
WHO IS A REAL ESTATE INVESTOR?
With that all-inclusive definition of real estate in mind, we can now define a real estate investor as an individual (or business or other entity) investing in the real estate market by purchasing, leasing or otherwise acquiring rights to a piece of real estate or any of the rights inherent in a piece of real estate.
WHAT ARE THE POTENTIAL BENEFITS OF REAL ESTATE INVESTMENT?
Although no type of investment can offer a guarantee of a profit or even protection of the principal, historically real estate has been one of the safest asset classes for investors, while at the same time offering potential for gains.
Real estate investing offers several possible benefits generally not associated with other types of investments. Here are just a few of those benefits.
One of the most powerful opportunities real estate investing offers is the ability for investors to leverage their capital several times over. In other words, real estate investors can use borrowed funds to invest in a piece of real estate they could not afford to purchase outright, but then realize all of the potential profit from ownership of that property. It is also important to point out, however, that with increased leverage comes increased risks.
Real estate can also provide several types of tax benefits. For example, the government treats real estate profits as capital gains, which are taxed lower than employment income. Additionally, the tax basis of your investment properties can decrease with time, because the tax code allows you to depreciate your real estate every year. Also, if you are generating cash flow from a rental property, you can potentially enjoy those profits free of self-employment taxation.
Another aspect of real estate investing that some people find valuable is the increased control they enjoy over their investments. When you purchase stocks or mutual funds, you must then simply wait passively for those assets to increase in value. Unless you are a major shareholder in those companies, you will not have much say in their operations, which often means that there is essentially nothing you can do to directly improve the value of your investments. When you invest in real estate, however, you can enjoy some control over almost every variable. -acquiring knowledge or negotiating skills to secure a better deal on the purchase, improving the property, finding creative ways to generate additional revenue (adding laundry machines to your apartment complex, for example), etc.
There are many other possible benefits of real estate investing — it can protect your capital against inflation, provide tax write-offs against your other income, etc.
Real Estate Investing Risks
Of course, no discussion of real estate investing would be complete without also discussing the risks involved. As with any investment, real estate carries the risk of loss. In the case of investing actively in real estate, such as buying a residential property to rent out, you carry the ongoing risk of vacancies, which will lead to a lack of income on that property, as well as a downturn in the real estate market, which can reduce your equity in the investment…
We’ve successfully arrive the end of this very article
And I’m very sure it has worth your while.