Welcome to professorsavings.com, we teach finance basics. Today we will teach you about an introduction to real estate investment
Real Estate investment refers to properties that generate income for a buyer or a purchase with profit in mind rather than as places for the buyer to live.
In most cases, the investor collects lease or rental income from the tenants who live in the property.
The investor can also benefit when the value of the property increases either by selling the property for a capital gain or using the built-up equity to purchase additional properties.
Professor Savings buys a condo as investment real estate and rents it to Greg, a college student.
The rent from Professor Savings’ tenants covers his mortgage payments.
When he feels that the condo’s value has risen enough, he can sell it for a profit or hold on to it for the monthly rental income.
But being a landlord is not that simple, however. As a property owner, Professor Savings is responsible for maintenance, finding tenants, collecting rent, insuring against liability and so on.
Consider the worst case scenario such as if Greg does not have money to pay for rent.
Professor Savings can hire a property management firm at an extra cost to deal with the day-to-day stuff, but there will always be some risks.
Real estate market might fall making the condo worth less than Professor Savings paid for it or more rental properties may open up, meaning the rents may go down because of competition.
Real estate, like other investments, carries specific risks and rewards. This is an example of a direct investment in real estate.
There are other ways to invest in real estate including real estate investment trust, real estate mutual funds, real estate ETFs, and real estate investment groups.