Somewhere down the line, as we take our finances more seriously, there comes the need to learn about the different investment opportunities that we can consider. Apart from the conventional investments related to mutual funds, stocks, bonds, and the like, there are a lot of alternative investments that should be part of the list, too, like real estate. Learn about real estate investing by reading this article!
What is Real Estate?
Also referred to as real property, real estate is an asset that comprises land and the buildings, air rights, subsurface rights, property fixtures, and utility systems included in that tract of land. In a more technical definition, real estate refers to the land and all the intangible property-related improvements that you can find within that area or are allowed to build/install in it.
There are four main types of real estate such as:
1. Land
This pertains simply to a tract of land. It can be a vacant lot, undeveloped raw land, plain farms, or ranches. When being up for sale, this only includes that piece of land, and the future owner will then be the one to decide whether to put improvements in the property for whatever purpose they choose.
2. Residential Real Estate
Residential real estate aims primarily to cater to individuals and families in need of a house – may it be a single-family home, multi-generational home, townhouse, apartment, condominium unit, rest or vacation house, or even a mansion. This may also be residential property for resale or the newly constructed ones looking for their first owners.
3. Commercial Real Estate
This refers to real estate properties for commercial purposes. This type encompasses hospitals, hotels, shopping centers, company offices, storage buildings, movie theaters, and other commercial establishments – even apartment buildings. While apartments are for people’s dwelling, it runs as a business; hence the building is used commercially. Read more about commercial vs residential investment.
4. Industrial Real Estate
This may be sometimes associated with commercial real estate because this also involves buildings and other properties utilized for business intentions. However, one key differentiation is that the real estate properties under this type are used for industry-wide manufacturing, warehouse storage, power plants, research and development, and product distribution.
Regardless of whether a real estate asset is for personal or business use, all real estate types are investment materials. This is because real estate per se carries great market values that, most often than not, appreciate over time. Hence the number of people getting interested in real estate investment also increases.
Why Should You Invest in Real Estate?
Investing in real estate offers an investor a myriad of promising returns and benefits. With the right set of investments, timing, and techniques, here are the top reasons why you should invest in real estate:
● Fair Market Value Appreciation of the Asset
One reason why real estate appreciates is the supply and demand. As the population rises, the need for more residential properties also rises. The emergence and developments of new business also spring the need for more land, commercial, and industrial properties. And when the demand is high, supply decreases; hence the value for these properties increases.
● A Land is a Non-depreciable Asset
Being a non-depreciable asset means that the value of that asset generally never depreciates or decreases in value. With this, securing a piece of land in your investment portfolio safeguards that one of your investments will not give you a negative return.
● Network Externalities
A network externality in economics states that the buying behavior of another influences the purchasing behavior of an individual. As an example, a residential location becomes popular for most professionals because of the convenience, proximity to work, and the type of lifestyle it provides for them.
Since this is the case, it is more likely that more professionals with similar needs and interests will fluctuate in that area. Taking real estate in the picture, the buildings residing in this location will also be favorably impacted, following the law of supply and demand. Particularly, the acquisition and rental rates will be higher.
● Inflation
Inflation is an economic phenomenon that usually happens and thus, is inevitable. As years go by, we can observe that the price of construction materials and rates for skilled laborers increases along with other products and services. As a result, real estate properties become more expensive. As an investor, this becomes an advantage, especially if you started investing early and witnessed your properties appreciate value over time.
Real Estate Investments You Should Consider
Suppose you are already looking into the possible real estate investments to add to your portfolio. You may opt to invest in real estate directly, invest in a Real Estate Investment Trust (REIT), or choose real estate syndication.
● Direct Real Estate Investment
This is the most straightforward manner of real estate investing as you directly acquire a property to be your own. This may be a residential property, a commercial building, or a tract of land. Earning opportunity comes through business rental income, fair market value appreciation, and other passive income you can derive from the property.
● Real Invest Investment Trust (REIT)
REIT refers to a company specializing in owning and managing real estate assets. Most of these companies participate in the major stock exchanges to generate returns. On the firms of dividends, these returns are then shared with the investors or the shareholders.
● Real Estate Syndication
This pertains to becoming partners with other real estate investors, and by pooling your investment capital, the group purchases and manages a real estate property. Interestingly, real estate syndication’s structure is also in the form of legal partnerships – either a general partnership or a limited liability partnership, depending on the terms and conditions agreed upon.
As an investor, note that these possible real estate investments are not automatically for you. Comparing REIT vs. real estate syndication, the latter is recommended for starters, given the growing real estate industry. However, these are not your only options. Investing in REITS VS Real Estate is also a crucial thing to study about.
The bottom line is: It is critical to assess first the pros and cons of each, and then evaluate whether it is suitable for your financial capacities and expectations about your investment returns.
How to Become a Real Estate Investor?
To learn more about real estate investing, a vital thing to be knowledgeable about is how to become an investor. If you have been investing for some time now, you have the basics of investing. Although this is the case, take note that real estate can be different in some significant ways compared to other investments. Hence specialized education about this is crucial.
Here’s a tip for you: Learn more about real estate investing by getting the help of professional real estate educators. To help you with this, Holdfolio offers professional services to teach and guide you through real estate investing.
Anchored by the purpose of creating profitable partnerships, Holdfolio takes pride in having 20+ years of experience in real estate. This experience includes managing over 3,000 apartment units, transacting with over $200,000,000 in value, and closing successful partnerships with approximately 3,000 active investors.
Conclusion
Becoming a real estate investor shouldn’t be scary, even if you are a first-time investor. With sufficient and appropriate information and industry-related professionals to guide and support you, the advantages of real estate investing will be on your side. Likewise, this information and professionals will also lead you to understand and avoid the risks alongside the investments.
For more information on REIT and real estate investing, visit and browse our site.
