Real Estate Basics-Real Estate Investing

Posted by admin on July 25, 2010 under Real Estate License Basics | Be the First to Comment

The real estate industry has always been one of the largest wealth generating industries anywhere. Investing in real estate is something that you will need to understand to earn your real estate license. In this installment of Real Estate Basics we will review real estate investing as it will be covered in your real estate courses.

An investment is when someone purchases something of value with the intention of putting it to use in a way that will increase its value over a period of time. With that being said, a real estate investment, by definition, would be the purchase of a real estate property primarily for its investment benefits or potential increase in value and not for its usefulness.

Real estate investors can invest in either an income property or a non-income property. An income property would be one where it is purchased specifically its investment benefits, such as a rental or lease property. The benefits of the investment can be in income like rent payments, or in the form of tax benefits, leverage or appreciation of value.

Since investment benefits do not always need to be by way of income generation, an investor can also invest in a non-income property. The investor may live in the property, but its purchase was primarily for the benefit of the investment and not solely to secure a residence. The benefits of such a purchase would be the potential for appreciation, tax benefits, and of course for the enjoyment of the use of the property.

Unlike other types of investment, there are a number of complexities involved in real estate investing. Investors in real estate will require a real estate agent or broker with a great deal of real estate training and understanding of the variables that can affect a real estate investment transaction. When necessary the client should be referred to a financial advisor for the analysis of a real estate investment, but the real estate licensee should have a solid understanding of the essentials of real estate investing.

As with any investment there are rewards as well as risks. In a real estate investment, some of the risks involve changes in the market, shortfalls in income, changes to tax laws, negative leverage, and just plain poor returns on the investment. Even with the significant risks involved in real estate investment, historically the rewards of investment outweigh the risks in the long run, making real estate one of the most solid investments around.

Many types of investments have liquidity while real estate investments are generally illiquid. This means that they cannot be sold off quickly for cash. Even when a property is placed for sale, there will in most cases be a significant period of time for the property to be marketed, sold and closed on. This differs greatly from investments like stocks which can be liquidated instantly.

An investment property requires hands on investor management to ensure that the property maintains its value. The investor must remain involved as they are responsible for taxes, maintenance, repairs and improvements that are necessary to preserve the value of the property.