Real estate investing is the purchase, ownership, lease, or sale of land and any structures on it for the purpose of earning money, generally dividing into four categories: residential, commercial, industrial, and land.
Residential real estate consists of single-family homes, multi-family homes, townhouses, and condominiums.
Commercial real estate is property that is used for the purpose of business. Classified as office space, retail space, or multi-family homes.
Industrial real estate properties serve an industrial business purpose. Some examples include shipping or storage warehouses, factories, and power plants.
Land generally consists of undeveloped property with no structures on it. There are limited ways to earn money from land as an investment. Landowners can earn money through land usage, such as agriculture, or upon the development or sale of the land.
There are three real ways of how to earn money out of real estate investments.
An investor who holds equity ownership of a property can earn income by leasing that property. Depending on how a property owner manages their real estate, whether independently or through a hired property manager, they may keep all of their earnings or share resources with a property management company. Rental payments may offer the potential for passive income.
A real estate loan is an arrangement where investors lend money to a real estate developer and earn money from interest payments on the principal of the loan. Debt investing can provide regular cash flow for an investor. Depending on the number of lenders, there can be one or several types of debt within the capital stack of a loan. This distinction defines an investor’s rights in the event of a property’s foreclosure upon the default of a loan.
As with the ownership of any equity, real estate ownership gives an investor the ability to earn money from the sale of that equity. The appreciation, or increase in the value of a property over time, represents the potential profit available to an investor when that property is sold. Unlike debt investments or rental income, a sale provides one large, single return.
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