Grade 8 Lesson 5: Types of #investments - #realestate
Real estate #investing uses #real #estate properties (such as a house or an office) as an #investment vehicle and gains profit through them through a variety of methods. It can be as simple as owning real estate, collecting cash flow in #rental #income, and selling the asset for a higher price due to #appreciation.
There are four main ways to make money from real estate:
1. #Capitalappreciation – when you sell the property for more #money than you bought it for
2. #Rent - money that you get if you give your property out on a lease to someone
3. Ancillary investment income
4. #Dividends from owning real estate investment trust (REIT) shares
REIT or Real Estate Investment Trust is a company that owns and manages many types of real estate properties like office buildings, apartments, hotels, hospitals, shopping malls, cell towers, etc. REITs pool money from many investors, and then invest it in real estate. So a person can buy and sell #shares just like they would for any other #stock. This is great if they do not have a huge capital for the equity required in an investment property.
Real estate investing can be done in many ways. First, a person can use capital to acquire property. They can do this independently or create a #fund with other people in their network to get started. It is just like finding and buying a house dwelling, but instead, they rent the home and collect cash flow from tenants.
Another way to make money from real estate is through any ancillary income a person can create from their property. For example, putting in a laundry unit that charges $1 per load or a vending machine at a property. They can also collect a #management fee for managing the assets and making money this way.
People also buy, renovate and sell properties (often called “flipping”) for a #profit. This is yet another way to make money from real estate.
While real estate as an investment can be extremely lucrative and can create huge amounts of #wealth, it does have drawbacks. Investments in real estate can be #illiquid, which means you can’t sell it quickly. This is one drawback. Another drawback is that you have less #diversification because your money is usually concentrated in one or a few properties.
Real estate in some form is always part of a #diversified portfolio.
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