Understanding Real Estate Investment

Real estate refers to land and the natural resources or assets in it. The term is commonly used to refer to the business of buying and selling real estate. The real estate industry is very lucrative. The reason is that there are many people, in urban areas especially, that are looking for a home or business premises to buy or rent. Since land is considered an asset that appreciates with time, many people desire to get into the real estate business. Below are several considerations you might have to make when deciding what type of real estate investment to make.

Type of Market

In real estate, you can either invest in the private or public market. An investment in the private market entails that you purchase real estate. In such a way, you hold the rights to that particular property. The private market has a significant amount of risk since it requires a lot of capital. On the other hand, the return on investment is usually high. In the public market, you purchase shares in a real estate company. You do not have direct rights to the property, but you receive a dividend at the end of the year. These markets are low risk; they do not require a lot of capital, but the rewards are low.

Type of Investment

A real estate investment is either in equity or debt form. An equity investment involves having rights to a real estate property. Proceeds from the investment are your profits. If you invest in debt, you lend out funds to a real estate investor who repays in installments at an interest. An example is mortgage-backed securities.

Category of Investment

There are various categories of real estate.

Residential: This refers to properties meant for people to live in such as apartments, single-unit homes or vacation homes. In the residential market, the property can either be sold, leased or rented.

Commercial: Commercial real estate consists of office space and business premises. Buildings housing restaurants and offices are in this category.

Retail: The retail market primarily consists of shopping malls. The owner might get a small percentage of profits in addition to the agreed-upon rent.

Industrial: Industrial investments include warehouse and storage premises. The industrial premises has to be located conveniently to attract tenants.

Considerations that you have to make before investing in real estate include the type of market and the type of investment you want to make.