What is Real Estate and Real Estate Investing?

 

I heard my parents wanted to do real estate investing. But what is Real Estate investing?

Real estate investing is where you invest in immovable property, like a house.

Is real estate investing only in houses and apartments?

No, that is one kind of real estate – it’s residential real estate.

But real estate could also be commercial property, like an office, store or land.

Is an RV considered real estate? Because it is a house, but you can move it!

No, RV is not considered real estate because like you said, you can move it.

How can I make money from real estate?

There are two ways to make money from real estate.

  1. You get an appreciation in price, where you sell it for more money than you bought it for
  2. Money that you get if you give your property out on rent

Is there any extra cost associated with Real Estate investing?

Well, you to have to pay property taxes every year. And there is also a cost associated with the maintenance of the property or Homeowner’s Association or HOA fee for condominiums/condos or apartments.

And there is also a very significant brokerage fee when you sell the property. That’s about 7% of the property’s value.

Well, how much money do I need to start investing in real estate?

Each property can cost 100’s of thousands of dollars. But you can take a mortgage to buy it, as long as you put about 20% of the money as a down payment.

Is there anything else I should know about Real Estate investing?

One negative is that the investment is illiquid, which means you can’t sell it quickly.

And another big negative is that you have less diversification, because your money is usually concentrated in 1 or a few properties. And, all the properties are likely to be in the same geographic area. So, if one property goes up in value, it is likely that the rest will go up in value too. But if one goes down in value, then they will all go down in value and give you a big loss.

But one big positive is that you get a lot of income tax benefits.

Other than buying a property directly, is there any other way of investing in Real Estate?

Yes, there is one other way of real estate investing, and that is using a Real Estate Investment Trust or REIT. But that’s a topic for another time…

Podcast: What is Real Estate and Real Estate Investing

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