Understanding Passive Investments in Real Estate

By
Real Estate Technology

One of the most popular topics that people search for is how to make money. People are always looking for ways to make more money. Sometimes the best option is the simple way. One of the oldest investment options out there is real estate. There are many who have made their fortunes from real estate (such as Donald Trump or Leona Hemsley). If the idea of renting or flipping out properties appeals to you, then keep on reading.

It’s important to understand how one actually makes money in homes. There is a limited supply of land, and homes that can be built in any given area. People will always want to live in a home or use it for business purposes.

There are two primary ways that you can make money from real estate. You either rent it out for the primary purpose of collecting rental income, or you buy a property with the intent of reselling it immediately.

How does it work? Here are two examples.

Renting: You purchase a property for $200,000 and have two tenants that rent it out for $40,000 a year. That’s a 20% return on your investment.

Flipping: You purchase a property for $200,000. You make it look pretty and redesign the house. You fix the broken windows, bathrooms… everything. You then resell the property for $260,000 minus the $20,000 of renovations. This is also a 20% return on your investment.

The difference between renting and flipping is your timeline. If you’d like to collect stable income, then renting is your best choice. On the other hand, if you’d like to make quicker profits, flipping is your choice instead.

If managing properties isn’t for you, there’s actually an alternative for you. There are investment vehicles called real estate investment trusts or (REIT). These are companies that employ many ways to make money from the housing market. They sell blocks of shares and distribute the profits to shareholders. If you’d like exposure to the real estate market, but don’t want to spend so much time on actually managing the properties themselves, then you might want to consider investing in a REIT instead.

It is, however, not without risks. One of the primary benefits of investing in real estate is the minimal investment needed. Thanks to mortgages that are provided by banks, you can easily purchase a $200,000 home by only spending $20,000. This is called leverage. However, if you can’t pay the interest payments, you risk the bank potentially seizing your new property.

The financial crisis of 2008 illustrated the risks associated with the property market. Thousands of people lost their homes and a significant amount of money because of a lack of caution. It’s important to do your research and not take any excessive risks. I’d highly suggest to learn from successful people who have made their fortunes from real estate. There are numerous resources out there online that will allow you to learn about real estate in much more detail. You can learn very quickly within a few months or instead speak directly with a company who can manage it all for you. A recommended resource is Cleveland Area Investment Properties as your go-to source for passive real estate investing advice. The Cleveland, Ohio, real estate market is booming currently with many seeking investment opportunities in the area.

 

Good luck!

Comments (1)

Troy Erickson AZ Realtor (602) 295-6807
HomeSmart - Chandler, AZ
Your Chandler, Ahwatukee, and East Valley Realtor

Jesse - If done properly, there certainly can be profits in investing in real estate, but it doesn't come without it's risks.

Aug 27, 2015 08:20 AM