~Real Estate Investing ~
Simply stated, when investing in real estate, the goal is to put money to work today and allow it to increase so that you have more money in the future. The profit, or “return”, you make on your real estate investments must be enough to cover the risk you take, taxes you pay, and the costs of owning the real estate investment such as utilities, regular maintenance, and insurance.
Real estate investing really can be as conceptually simple as playing monopoly when you understand the basic factors of the investment, economics, and risk.
In order 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, consequences can range from minor inconveniences to major disasters. You could even find yourself broke or worse.
When you invest in real estate, there are several ways you can make money:
There are several ways to buy your first real estate investment. If you are purchasing a property, you can use debt by taking a mortgage out against a property. The use of leverage is what attracts many real estate investors because it lets them acquire properties they otherwise could not afford. However, using leverage to purchase real estate can be dangerous because in a falling market, the interest expense and regular payments can drive the real estate investor into bankruptcy if they aren’t careful.
You will almost NEVER purchase a real estate investment in your own name. Instead, for risk management reasons, consider holding real estate investments through special types of legal entities such as limited liability companies or limited partnerships (you should consult with a qualified attorney for his or her opinion as to which ownership method is best for you and your circumstances).
That way, if the real estate investing goes bust or someone slips and falls, resulting in a lawsuit, you can protect your personal assets because the worst that can happen in some circumstances is you lose the money you’ve invested. This lets you sleep at night because unless you’ve screwed up somewhere, your 401(k) plan assets, Roth IRA investment, and other retirement accounts should be out-of-reach.
When you are ready to start the process of real estate investing, you’ll want to decide which of the real estate investing types is most appropriate for you. To help you understand the options, I wrote an article called The 8 Types of Real Estate Investments that explains the difference between REITs, industrial properties, residential investments, etc.