Investing in Real Estate
Real estate investing is a way of making money buying, selling, and leasing property. Real estate includes real property consisting of the physical structures and property on it, and its accompanying natural resources like water, crops or minerals; immovable real estate of this kind; and an equitable interest in it, i.e. buildings, houses or property in general. This can be done both by a private individual or through a government agency. Private individuals can pursue this option alone or through companies, partnerships or even with the aid of a fund.
One of the most important characteristics of real estate as an asset class is its potential for generating income. There are different real estate markets depending on whether one is looking at residential real estate or commercial real estate. Residential real estate deals with the buying and selling of homes and commercial real estate deals with the building and leasing of buildings. These two asset classes together account for almost eighty percent of the market in the U.S. today. The other twenty percent are classified as immovable property and personal real estate.
There are two ways that people can go about making real estate investments: either by buying single-family residences or by investing in multiple-unit residential and commercial properties. If one wishes to invest on residential properties, one can opt to purchase plots of land, houses, townhouses, bungalows or apartment buildings. In case of the latter type of real estate investment, one can invest in apartments or condominiums; properties which come with multiple units. Most investors choose to invest on these kinds of real estate properties as rental properties because they allow the investor to earn an income without having to put out any cash up-front.
However, there are a couple of things that are important to consider when investing in real estate. One needs to identify and analyze the real estate market, and assess the pros and cons of the various investment options before deciding how to go about it. Real estate investing also requires knowledge of the various types of real estate loans, the four main types of financing, and the working principles involved in the real estate industry. Once you know all these factors and understand the process of investing in real estate, you are on your way to invest in real estate.
The four main types of financing used by investors include: government loans, bank loans, tenant financing, and buyer financing. Government loans are those from the federal, state, and local levels while banks usually come in three forms: government-secured loans, bank loans, and investor financing. Government-secured loans include the FHA-insured loan, which are backed by the United States Department of Housing and Urban Development, VA-insured mortgages, and a variety of mortgage insurance programs.
On the other hand, investor financing involves taking out loans using mortgage-backed securities, or “pass-through” accounts. These securities are backed by the full faith and credit of the United States government. They are available in both primary and secondary markets, with the primary market consisting of “pass-through” certificates that pay the interest while the securities themselves pay the principal. Both primary and secondary markets have their own economic characteristics, as well as advantages and disadvantages.