Real Estate Investing FAQ
Real estate investing is the practice of purchasing a structure or piece of land and reselling it for a profit, often after making improvements. Although potentially lucrative, real estate investing is both complicated and risky. Investors seeking to enter the market are often faced with a host of questions about the practice.
Other People Are Reading
-
Types
-
The most basic method of real estate investment is to purchase a property, allow it appreciate, then resell it for a profit. However, in addition to purchasing properties directly, there are a number of financial securities that are backed by real estate properties. For example, an investor can put his money in a real estate investment trust, or REIT fund, in which a pool of money is used to purchase a wide variety of properties--like a mutual fund for real estate. Similarly, investors also can purchase stocks in real estate exchange traded funds, or ETFs, in which properties are pooled together and sold in the form of shares of stock.
Time Frame
-
One of the chief mistakes of many seeking to invest in real estate is the belief that that they can make a quick buck. In fact, solid real estate investing is a long-term investment, one that often takes years to mature. Eric Tyson, co-author of "Real Estate Investing for Dummies," says that anyone hoping to flip a house must be smart, hardworking and willing to take on a significant amount of risk.
-
Misconceptions
-
One of the biggest misconceptions by potential real estate investors is the belief that holding a property while fixing it up or waiting for it to mature costs little. In fact, holding a property, particularly one purchased with a mortgage, can be very expensive. Not only does the homeowner need to make regular interest payments, but she also must keep up regular maintenance on the property.
Benefits
-
The chief advantages to real estate investing are that it is open to anyone, it can qualify the investor for tax breaks and it is potentially lucrative. So long as an investor can qualify for a mortgage on a property, he can become a real estate speculator. In addition, taxes will not generally be assessed on profits derived from the sale of a property if those profits are reinvested in a new property.
Risks
-
Real estate investing is fraught with risks, the foremost of which is that the property will decline in value or that the investor will not be able to find a new buyer. These situations can saddle the investor with enormous financial losses.
-
