Home Business Insights & Advice Get a glimpse into how real estate business works

Get a glimpse into how real estate business works

by Sponsored Content
14th Apr 19 12:27 pm

The crucible of modern life is money. We want and need it, and everything we do is to get more money. The problem is money seems to get spent much faster than it’s actually made. And corporate slavery isn’t exactly paving the way for financial freedom and millions of dollars. This is why many people have begun shifting their interests into private business and investments, because this is the way you can make money from something that is yours and that doesn’t include working 12 hours a day. Many would agree that the best way to invest your money is real estate business, for more reasons than one.

What is real estate?

Real estate is basically any property that consists of land, whether it’s buildings, natural resources within the area of the property, or the land itself. Speaking of that, you can divide any real estate into four main categories. Residential real estate is any property that people use for residence, so you’re talking condominiums, apartment buildings, mobile homes, townhouses, vacation rentals, and so on. Then you have commercial properties which are used for stores, malls, offices, shops of all sorts, service providers, and so on.  Land properties are farms, ranches, and pretty much empty land. Last but not least, industrial properties are anything related to manufacturing processes, like factories, warehouses, storage units, and so on.

How does the real estate business work?

The notion itself is simple. People wanting to buy real estate reach out to an owner of one through a broker. They buy a property they like and the broker gets a percentage of that deal because they helped facilitate everything. Simple enough? Well, there’s actually a bit more to it.

Real estate market

When you’re talking about the real estate market in a certain area, then you’re talking about properties available for sale in a certain area. When you hear, for example, the real estate market in Tampa, Florida, is down, then it means that the prices of property in Tampa are low and now might be a good time to start investing, because they will go up most likely. Still, unless you’re interested and invested in the real estate market in general, chances are you’ll only hear about the housing market, which only pertains to residential properties. While those residential properties give a good indication of how people and the general market are doing, you need to know that there are three other types of properties you need to learn about in order to give a fair estimate on how the market is doing overall.

Real estate agents

Whether you’re looking to buy, sell, or rent a property, chances are you’re going to need one of these guys. A real estate agent helps all those wanting to deal in any transaction related to real estate, and they make sure that the transactions are done follow rules and procedures of that certain area. They also do all the negotiating on behalf of the client. They get a piece of the transaction of course eventually, in exchange for their services. Usually, you’ll find real estate agents specialized in each of the four main property types. So if you need to sell an apartment, you’ll definitely not go visit an industrial property real estate agent.

There are two types of real estate agents. A buyer’s agent will help you find a property you’re looking for. They use their knowledge and expertise of the local market to help their clients find the most suitable property suiting their needs. They do this based on the client’s needs as well as budget by doing a comparison between prices of different properties to help the client reach the most affordable place according to their budget.

The seller agent, on the other hand, helps people wanting to sell their property. They do so by using their networks of connections where they might find a willing buyer, or using a listing service for people on the hunt for a property.

Both real estate agents must have experience in the market as well as knowledge of local laws so they could draft and finalize the selling process. They get paid by a commission as we mentioned, and it’s split between the buyer and seller agents, usually. This commission is only received once the sale has been completed, and not before that. The average commission in the real estate business is usually 5 or 6 percent.

How can you invest in the real estate market?

While buying or selling property does mean you’re involved in the real estate business one way or another, there’s a bit more to that if you want to really make money out of real estate. The most important thing about the real estate business is knowledge. It’s by far your most important asset. You need to know everything you can about the market you plan on investing in before going forward with your plan. How has the market been doing over the past few years? What is the average price for real estate in this area? Will the property I’m buying increase in price in the future or will it remain the same? Can you get away with a fixed interest rate mortgage or will you have to deal with increasing interest rates? There is a ton of questions to ask, and for good reason. While real estate is one of the best investment options out there, going in blind can make it quite a poor one.

Being a landlord

The first way you can invest in the real estate business is by being a landlord. This is a good option if you have good enough capital and enough money to make a good initial investment, not to mention covering the cost of maintenance. It also helps if you’re good with people, because you’ll be dealing with a lot of tenants, naturally. What many people are doing now is crowdfunding to get that initial investment. There are plenty of websites out there to get you started but not all are good. Fundrise is one of the better ones, and many have had good experience with it. In this blog post, a Fundrise review is given, detailing the pros and cons of crowdfunding and comparing this particular company to the competition. It also delves into crowdfunding and why it’s a good option for those wanting to get into the real estate market but are lacking the initial investment to do so.

The process works quite simply. You buy a property, and rent it to a tenant. You become the landlord and your responsibilities include paying the taxes, mortgage, bills, and so on. Naturally, you’d charge your tenants a rent that covers all that, and leaving some considerable amount that is to be your monthly profit. If the whole being a landlord thing worked out, then you’re in for a very good source of regular income, which many people want. The con, however, of being a landlord is the fact that it is not easy work. To be a landlord means you have to be involved in the property to helps tenants with any problems whatsoever, or you risk losing your investment.

Real estate trading

This is basically dealing with real estate as if it were the stock market. Real estate trading, commonly known as flipping, is when you buy a property, keep it for a short amount of time, and then sell it with the hopes of making a decent profit by doing so. Flipping is more geared at people with a considerable amount of experience in the real estate business, because it requires extensive knowledge of the business and the market, which properties to buy, when and where, and so on. Flippers usually focus their attention on hot markets and properties that are undervalued or go unnoticed. So this is definitely not a good investment idea for a novice wanting to get involved in the real estate business, because you need to know which of these you’re going for.

To get into flipping, other than hands-on experience, you need a strong capital to get started, but the good thing about real estate trading is the fact that those doing it don’t retain the property for long periods of time –– they keep it for around 3 or 4 months usually –– which means your investment isn’t tied to one place for a long period of time. Flipping, however, requires some luck, next to the necessary knowledge, so you should go in knowing that.

An investment group

What do you do if you want to invest in real estate but you’re unwilling to put in the hard work it takes to be a landlord, and you also lack the experience to be a flipper? Well, the answer is you invest in an investment group. A real estate investment group is a company that buys or even builds apartments or condos, and then it allows investors to buy as many of those apartments or condos as they please. As an investor in one of these companies, you can buy one or as many as you want of the condos or apartments. The upside is you don’t have to deal with any tenants or running the place. The group takes care of everything, from maintenance to advertising and collecting rent. The investment group gets a percentage of the monthly rent and everyone lives happily ever after. You have a steady income coming in from your investment, and you don’t have to bother with the headache of running an apartment building and dealing with tenants and their problems.

You naturally need an initial capital to get into this type of real estate investment, but the cool thing is you don’t really have to worry about anything else other than the initial investment since pretty much everything else is run by the investment group. There is however a certain risk with this type of investment if the company is suffering from bad publicity leading to several vacant units, which might affect your monthly earnings and lead into several payless months.

Is real estate your best investment option?

Generally speaking, most people who invest in real estate would agree that it’s the best investment option for their money. This is not without reason; these are some reasons why real estate is one of the better investment options out there.

Safer than other options

There are other investment options out there, but none are as safe as real estate. For instance, stocks are extremely volatile and you don’t know if you’re going to make a fortune or go bankrupt the following day. Real estate market doesn’t have that risk. Yes, your profit or loss will depend on the market, but it’s much different than what goes on with stocks. With real estate, you control what goes on and there aren’t many outside factors like stocks. If the market is doing well and your property is increasing in value, you’ll sell; it’s as simple as that.

It’s only going higher

Barring another global financial crisis, chances are your property price is only going higher. Properties tend to go higher in value with time, and this is perfect for anyone looking for a long term investment.

More options

What’s good about real estate is it’s an excellent addition to anyone’s portfolio. Any financial expert would recommend diversifying your portfolio and investing in several options to make sure you’re not putting all your eggs in one basket. A real estate investment doesn’t only do that, but it also gives you a much safer investment option than most, too.

Learn all you can

You should have a good understanding of how the real estate business works by now. In any case, it’s important to learn all you can about this business before you start experimenting with buying properties and such. While the real estate business is an excellent option and a sound investment, going in carelessly without knowing what you’re getting involved with will not help you achieve the profit you’re after. Read about the business and the different markets, and ask for experts’ help to get better insight into the ins and outs of such a big global market.

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