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How to Invest in Real Estate Property

How to Invest in Real Estate Property

Learning how to invest in real estate isn't just for the big spenders. The potential returns in the real estate market make it the perfect business opportunity for people from all walks of life. There will be some need for capital to sink into your real estate venture, but there are many levels to get involved in from basic rental properties on up to massive corporate deals.

Investing in real estate is a bit less popular these days than a couple of years ago before most markets burst. But regardless of the ups and downs of the market, real estate investing is a common choice. You might not be able to get in at the investment level you once could have, because of the credit crunch, but now is a time to buy cheap.

Investing in Rental Properties

This is the most basic investment in real estate. You buy a property and rent it out to a tenant. This either can be a time intensive exercise or a back burner project depending what kind of landlord you want to be.

The owner of these properties is responsible for almost everything: paying the mortgage, paying taxes and maintenance costs. In an ideal rental situation, the landlord charges enough rent to cover all of the aforementioned costs, with a tiny bit left over.

Become an owner on a hundred properties and you can see big gains. Become a landlord on a small scale for a little extra spending money.

There are problems with this kind of investing that make what seems like easy money into a rocky choice, though. If you have a bad tenant who damages the property you can lose money, or you may have trouble finding a tenant at all. An empty apartment is an income drain.

The costs of finding and maintaining a good rental property can be enormous. Look for an area where there aren't many vacancies, or a "hip" area of town that just soaks up business.

Another Kind of Real Estate Investment

You can also choose to invest in something called a REIG or "Real Estate Investment Group". These are like small-scale mutual funds, but with rental properties instead of stock properties.

If you want to own a rental property and enjoy that alternate source of income, but are scared about being a landlord, an REIG is for you.

In an REIG, a company buys or even builds a set of apartments, duplexes or condos, then lets investors put in money to form a kind of company. In this way, a single investor can have part ownership of one or as many units as they want, but the property is managed by an REIG instead of the individual.

What's the catch? The REIG takes a percentage of the rent right off the top.

There are lots of different kinds of these REIG groups, but the actual lease is in the individual investor's name. Do your research, because not all REIGs are the same. Not all are profitable, due to the real estate market and fee structures.

No matter how you choose to enter the real estate investment market, you need to be aware that these are high risk investments especially in the short term. Imagine if you had started your investment right at the cusp of this recent bust in home values.

You'd probably be underwater, like most real estate investors in the country. Investing in real estate pays to move slowly and research plentifully in a market as volatile as this one.

Image by: Sherwood CC