Investing in real estate can be one of the most lucrative and exciting ways to make money. But, as with any other form of investment, real estate investing carries certain risks. For those looking to get into the investment real estate market, it's important to understand the risks and know how investing in real estate is different from other types of investing.
An individual can choose to invest in real estate in a number of ways. Some investors buy a home to live in with the expectation of selling in the near future when the value of the property rises. Another type of real estate investment involves buying a home or apartment complex and renting the space to tenants, whose rent checks help pay the mortgage as the value of the property rises. Still another way to invest in real estate is to buy into a mutual fund or investment security based on real estate holdings. One example would be the mortgage-backed securities that gain value as homeowners pay off loans.
Successful real estate investors generally follow some of the same guidelines and tips. Investing locally is often a good idea, because the investor may have special knowledge about the future of the region or neighborhood and can better assess when is a good time to buy with property values at their lowest point. Investors with good credit have an advantage, because they'll be able to gain access to lower interest rates when buying investment property. As with any investment, real estate investing should be balanced by some other form of investing that can help offset the losses from an investment that results in a loss.
Being a Landlord
Many real estate investors end up becoming landlords and managing the investment property that tenants occupy. This can be a full time job, as the landlord has a responsibility to keep rental units habitable and respond to tenant repair requests. Hiring a management or maintenance service is an option but can cut into a landlord's profits. Renting to reliable tenants is a matter of marketing the property, but even the most shrewd landlord should count on occasional vacancies when planning a long-term budget.
Real estate investing comprises many different risk categories. While an investor can easily track the past success of a real estate-based mutual fund or mortgage-backed securities, predicting the future of home prices is more difficult. Local market trends, interest rates and the general state of the economy all figure into the prospects for a particular piece of investment property. Knowing the state of an investment property before buying and being patient as the market forces its value to rise will reduce an investor's level of risk in most cases.
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Listing information last updated on December 12th, 2019 at 8:54am PST.