How Does Real Estate Investing Work?

December 29, 2010 Investing, Investing Tips, Profitable Investing, Profitable Investing Tips, Real Estate Investing

There are various forms of real estate investing. How does real estate investing work, in general? Finding a good property at a low price and selling at a profit is the basis of success in real estate investing. However, there are a number of answers to how does real estate investing work depending upon how one invests in real estate. There as many ways for investing in real estate to work as there are profitable real estate investing products. Investing in small properties is obviously much different than developing a large mall, for example. Investing in real estate investment trusts is a far cry from buying a home, despite the fact that each investment will prosper in a rising real estate market.

Considering home ownership, how does real estate investing work for someone buying a home? The home buyer will look for property located within a reasonable distance from work, schools, shopping areas, and recreational activities. The home buyer will also look for the size and type of house in which he or she wants to live, raise a family, or retire in. Within the above constraints, the home buyer will look for the most advantageous price, mortgage terms, and availability of property. The home buyer will be able to write off mortgage payments against taxes and will, commonly, see the home investment appreciate in value over the years. He will also be engaged in repairs, maintenance, and home improvements or additions over many years. Although he will look for the best real estate deal in buying his home he will also be limited in his investment by where he will live, work, and send the kids to school. Although he will ask himself what is a good investment in real estate his purchase will be largely constrained by the facts of his life.

In comparison, how does real estate investing work for someone speculating in the real estate market? In a rising market a speculator can look for the most profitable opportunities. He will look for short sales and make short term profits from buying a distressed property at a low price, fixing it up, and selling it at market value when prices are rising. Unlike the home owner who will hopefully never have to ask himself, what is a short sale in real estate, the real estate investor and speculator will seek out these situations in order to profit from real estate investing.

How does real estate investing work for a real estate agent or someone in home construction? These individuals find more profit in an active market as their income derives from the volume of work that they accomplish. The realtor, especially, may be a good source of advice as to how to start investing in real estate he will have a broad and clear view of the real estate market as it evolves in his locale.

For the investor interested in investing in somewhat more passive approach to real estate how does real estate investing work for a REIT, a real estate investment trust? These are a profitable means of investing in a rising real estate market and can be purchased and sold like stocks or bonds. Just as stock investor will want to know such things as how to determine stock volatility the investor in REITs will want to have a clear idea of what types of real estate underlie his investment and what market conditions are.