What is real estate investment and how does it work?

There are several ways to invest in real estate, but they all rely on similar economic factors to make a profit. The first is that the property must increase in value.

What is real estate investment and how does it work?

There are several ways to invest in real estate, but they all rely on similar economic factors to make a profit. The first is that the property must increase in value. Buying and owning real estate is an investment strategy that can be both satisfying and lucrative. Unlike investors in stocks and bonds, prospective real estate owners can use leverage to buy property by paying a portion of the total cost up front, and then paying the balance, plus interest, over time.

This is the proverbial wild side of real estate investing. Just as day trading is different from buy-and-hold investors, real estate flippers are different from buy-and-let landlords. For example, real estate flippers often seek to profitably sell the undervalued properties they buy in less than six months. Many investors rely on the value of a property as a method of real estate investment.

One way to achieve this is to buy a property in need of improvement at a discount, add value to it through renovations, and sell it at a higher value. This method of fixing and flipping property is an active investment strategy, but can be quite lucrative if done well. Within the broad category of real estate investment trusts is a subset called real estate investment groups. These organisations perform a very specific function: they buy or build a group of properties and then sell them to other investors, who may rent them out.

Because they are often highly sophisticated and knowledgeable, these real estate investment groups also help investors find tenants and act as property managers, in exchange for a percentage of the rent. Each strategy carries different costs and risks. Investing in a REIT is similar to buying a mutual fund, for example, and requires much less time and energy than renting a house. Buying property gives you more control and responsibility, which is riskier but can also lead to higher returns, says Mehta.

If you invest in rental property, you become a landlord, so you have to consider whether you will be comfortable in that role. Compared to other types of real estate investments, REITs have the advantage of being very liquid. There are many ways to invest in real estate, which means that the way you make money from real estate will change depending on the investment method you follow. Direct investment in real estate through the purchase of rental properties offers the possibility of short-term returns from rental income, long-term returns from property appreciation and tax benefits that are used to reduce the amount of taxable income.

Commercial real estate tends to be more expensive than residential real estate, making it a popular investment opportunity for large investment companies or those with a lot of money to invest in real estate. But it can also refer to a myriad of other investment opportunities, including buying and then leasing the mineral rights to a parcel of land, or investing in a Real Estate Investment Trust. In addition, you also have the opportunity to simultaneously take advantage of real estate crowdfunding and REITs by investing in RealtyMogul's MogulREIT. But since establishing the company (for legal and tax purposes), raising capital and securing the right real estate deals are the only prerequisites for operating a real estate investment trust, individual investors can also do so.

Some investments from a crowdfunding site, investment group or private equity group may only be available to accredited investors, or to high net worth and high income individuals. For real estate investors seeking a balanced mix of risk and potential reward in their portfolios, here are 4 common strategies used to invest in real estate. Real estate represents 60 per cent of the world's major assets and a significant portion of all national, corporate and personal wealth. Individuals can own and invest in real estate, as can businesses, such as a limited liability company (LLC), a corporation, a trust or a larger real estate investment group.

If your property appreciates in value, you can sell it at a profit (when the time comes) or borrow against the equity to make your next investment. 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 may make the most sense for you, you must first understand the fundamentals of real estate investing.