Real estate is more than just buying a property to call itself a home. The definition of the term extends beyond the tangible ownership where a structure can be constructed aside from the raw nature of spatial earth piece in hectares or square kilometers where any structure above or under it can be added and built. It is regarded as an investment vehicle that can bring gains when disposed or leased in a definite period of time.
A residential family house can be put up in the market for the purpose of gaining from the proceeds of the sale. Meanwhile, a mortgaged house can be rented to earn from the profits of the lease to cover the mortgage and maintenance cost. A rented unit for residential purpose can also be rented out to other occupants to earn from the rental.
Real estate is regarded as an investment vehicle for individuals or even organizations to benefit from the profits of the sale versus the costs of maintenance and related expenses.
To learn more from the real estate investing, it is important to break down the investing opportunities where investors can earn heaps or enough gains from owning or managing properties.
Rental Properties
Many small time real estate developers start with constructing few townhouses in their pieces of lot owned for the purpose of renting the units and potentially gain from the rental income.
Whereas those who want to start in real estate investing after acquiring a property aside from their homes, start their real estate venture by renting out the property to cover the costs accrued in property acquisition.
If the property is acquired through mortgage, the landlord charges enough rental revenue to cover the cost of mortgage, maintenance and other costs. A landlord can charge more to produce a better sum of profit but he can do that when there is an increasing demand of rental properties in the area, at that point, there is an appreciation of real estate value.
The gains from rental properties correspond to the number of properties being rented out. But this investing practice can have some blemishes.
Landlords have to assume the role of property managers unless they want to hire someone or a service group that can help in maintaining the rental properties’ upkeep including dealing with the tenants and advertising the rental properties.
There is also a problem of possible lead-time in occupying the rental property from its ready for occupancy state. There may be months of no tenants in which the landlord will have to do advertising to put up the property in the market for listing and have to contend for negative cash flow. If the rental property is acquired on mortgage, the owner must cover for the mortgage cost and must be able to bring in tenants more quickly to meet the expected returns of investment.
Choosing the right property that people will want to rent can also be arduous. This requires great strategies to be able to attract tenants and create positive cash flow in real estate investing.
Property owners have to devote time to make their rental properties attractive in the market. This kind of investment makes it different from other investment vehicles where investors can gain positively from the waiting time as seen in stock and mutual funds investment. In rental properties, the waiting time to find tenants produces negative cash flow.
But what makes investing in rental properties a smart way of investment is that property owners can earn substantially or enough from the rental income on a monthly basis especially from the long-term leasehold contract.
Real Estate Investment Groups
Owning a rental property has its privileges but it also has hassles such as in maintaining the property to make it attractive for future tenants and maintaining the vicinity and utilities of the property to be of good service to the recent tenants. Devotion to be of good service to the tenants is important in this kind of real estate investing.
But then the landlord and property owner can still have an option to hire a property manager to do the tedious tasks of managing the property.
Real estate investment groups that have the similar characteristic of managing mutual funds can be a solution for property owners who wish to earn from rental properties but without the hassle of managing the properties.
An example case of this is the condo hotel or condotel where a management group manages the units owned by various investors in a hotel-like operation.
Units are maintained similar to the fashion in a hotel. The management group takes care of the tenants of the units including the marketing, booking, refurbishment and even cleaning and laundry services. Rental income can be earned even if the unit is empty for a certain period. This makes it an attractive and smart way in real estate investing.
But the downside of this is that the management group gets also a share of the rental income.
But overall, if all factors are considered, having the rental units managed in this kind of fashion makes it similar to other types of investment. Thing is the rental income can be gained in a periodic manner based on the agreement between the unit owners and real estate investment groups.
Real Estate Trading or Flipping
This kind of real estate investment applies the principle of buy-and-sell trading. The investor has to purchase the property with the intention of disposing the property in less amount of time, at least not more than three to four months at a higher price to profit from the selling.
This is a wild side of real estate investing with similarity to day trading. But there is also the waiting moment where the investors have to consider the appreciation of real estate value in the location and then the market preference. Thing is, the investors should not keep the property longer or they will be caught up in settling the mortgage expenses.
This kind of investing is popularly called flipping. Investors turn to this kind of undertaking when they see the properties to be undervalued and so they hope with their powers of creating demand to turn their purchase into a lucrative opportunity by selling at a higher price.
Another factor for investors to turn to this kind of investing is when they see a hot property in the market with a bigger appreciation in value in a foreseeable future.
Pure flippers don’t see the need for home improvement before unloading the property to the market. They must flip the opportunity immediately to profit from the lucrativeness as dictated by the market.
The secondary breed of home flippers regard home improvement with the hope of disposing a more attractive property at a much higher price to cover the cost of acquisition including the improvements and mortgage.
The Bottom Line
Real estate investing is a lucrative undertaking with a promise for regular gains and better returns of investment. In the case of rental properties, short-term and long-term gains are anticipated from the rental income. Whereas in flipping homes, more rewarding returns can be experienced once the property is sold and the gains are realized.
The question as appeared in the title begs for a more positive answer, which is summed up in the word “lucrative”. Hence, a foreseeable gain from the selling or renting of properties makes real estate investing a definitely smart undertaking.
