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What Types of Real Estate are Worth Investing in?
Many people ask: what real estate should I invest in? Is it possible to still make money in real estate, despite the economic downturn? Let's examine some answers to these questions.
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It is Still Possible to Make Money in the Real Estate Market
Experts say it is still possible to make money in the real estate market. Just use the three principles you would for any business: buy at a price you can afford; sell for more than you paid, and sell in a measurable time frame. While other types of investment may bring a profit of 8%, real estate may bring you a profit of 30%.
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Real Estate Investment Groups
Some experts describe real estate investment groups as the mutual funds of rental properties. Many financial experts have described mutual funds as one of the safest and surest ways of investing, because you are investing in many secure companies all at once--rather than an individual stock.
Investing in a real estate investment group allows you to own rental properties, without having to be a landlord. You don't have to be the one to deal with maintaining the property, or with tenants who don't pay their rent. You can invest in one or multiple properties, but the company you are investing in takes care of all of those unpleasant details.
Some experts say this is one of the safest ways to invest in real estate, but you will have fees to pay, the same as if you invested in mutual funds. How much money you make may depend on how good the investment company you invest in is, so it pays to do your research.
The lease is in the investor's name. All the units are pooled for a portion of the rent. This keeps you from hurting as much financially, in the case of vacancies.
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Real Estate Trading
Some people make money from real estate trading. This type of investing is riskier than other types, however.
With real estate trading, investors try to buy property for significantly less than it is really worth or in a hot market area. They will attempt to sell it for a lot more money in a few months, usually no more than three to four. They often do not make any improvements, so they make a greater profit. The problem is, if they can't sell it quickly, they might have to pay the mortgage and other costs for quite awhile.
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Have you always wanted to invest in malls or office buildings, but figured it would cost too much? You might have also figured investing in that type of real estate would be too complicated.
If you feel that way, you might want to invest in a Real Estate Investment Trust. Such trusts are bought and sold on the stock market like any other stock. A corporation must pay 90% of its taxable profits to be a REIT. For that reason, it can be a solid investment, if you want a regular income from your investment. You receive an income, and the company does not have to pay corporate income tax. Everyone wins.
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Some people still make money investing in basic rental properties. Others make money buying foreclosures, making any repairs needed, if any, and selling the properties they have purchased for a big profit. There are other types of investment, including farm land.
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Basic Rental Properties
Every since people have owned land or houses, individuals have made money by renting to others. Naturally, the land owner is responsible for the upkeep of his land, house, property taxes, and the mortgage. Many times, the landowner charges just enough to cover these costs, with no margin for profit until the house is sold. Hopefully, he will then have a big profit. Some property owners do charge enough to make a profit, however, even when they are still paying mortgage costs.
When someone does invest in rental properties, often his properties appreciate over time. If he ever decides to sell them instead of renting, he makes a nice profit.
One downside of this type of investing is the cost you incur in maintaining your property - including repairs, painting, fixing a bad furnace, or for other items. If you get a tenant who is not faithful about paying the rent, that could cause financial problems.
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Some people make money buying homes that have been through foreclosure. They make repairs, if needed, and sell the homes for a profit.
There are various ways to find such homes. You can find them advertised in local newspapers. You can let attorneys and local real estate agents know you are interested in buying foreclosures. You can also find foreclosures in your area through the Veteran's Administration, the Federal Housing Administration, and the Department of Housing and Urban Development. It is also good to check the property out before you go to the trouble of placing a bid on it. A title search determines ownership and any problems the home may have.
The trustee of the foreclosure will be able to tell you the minimum acceptable bid for the home.
Before placing a sealed bid at the foreclosure sale or sheriff's auction, it is a good idea to determine how you will pay for the home.
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If you asked before you read this article: "what real estate should I invest in?," now you know some of the best investments around. There are many other ways to make money through investing in real estate, including investing in farm land, as the Mallorys explained in their article "Real Estate You Should Invest In." This article has just scratched the surface. It is possible, even in 2010, with a poor economy, to make money investing in real estate. That doesn't mean it doesn't require hard work, or that there are not risks.
Citations: Real Estate Investment Trust -- Reit, no author listed, investopedia.com