What Is It?
Usually, the first thing you look at when you purchase a home is the design and the layout. But if you look at the house as an investment, it could prove very lucrative years down the road. For the majority of us, buying a home will be the largest single investment we make in our lifetime. Real estate investing doesn't just mean purchasing a house - it can include vacation homes, commercial properties, land (both developed and undeveloped), condominiums and many other possibilities.

When buying property for the purpose of investing, the most important factor to consider is the location. Unlike other investments, real estate is dramatically affected by the condition of the immediate area surrounding the property and other local factors.

Several factors need to be considered when assessing the value of real estate. This includes the age and condition of the home, improvements that have been made, recent sales in the neighborhood, changes to zoning regulations, etc. You have to look at the potential income a house can produce and how it compares to other houses in the area.

Objectives and Risks
Real estate investing allows the investor to target his or her objectives. For example, if your objective is capital appreciation, then buying a promising piece of property in a neighborhood with great potential will help you achieve this. On the other hand, if what you seek is income, then buying a rental property can help provide regular income.

There are significant risks involved in holding real estate. Property taxes, maintenance expenses and repair costs are just some of the costs of holding the asset. Furthermore, real estate is considered to be very illiquid - it can sometimes be hard to find a buyer if you need to sell the property quickly.

How To Buy or Sell It
Real estate is almost exclusively bought through real estate agents or brokers. Their compensation usually is a percentage of the purchase price of the property. Real estate can also be purchased directly from the owner, without the assistance of a third party. If you find buying property too expensive, then consider investing in real estate investment trusts (REITs), which are discussed in the next section.

  • Whether your objective is income or capital appreciation, real estate investing can help you achieve your goal.
  • Mortgages allow you to borrow against the property up to three times the value. This can dramatically increase an investor\'s leverage. Remember that you typically need a 5% down payment first.

  • Weaknesses
  • Selling property quickly can be difficult.
  • There are significant holding costs, especially if you are not residing in the property. Examples include property taxes, insurance, maintenance, etc.

  • Three Main Uses
  • Provides Income
  • Capital Appreciation
  • Leverage

  • Next: 20 Investments: Real Estate Investment Trusts (REITs) »

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