Investing in residential real estate
Adit Kashyap | March 30th, 2022
As per its definition, real estate is the land and all the buildings on that land, alongside any natural resource in it like crops, minerals, etc. A simple and quick analysis of the definition should make it clear to everybody that real estate is essential for human life. We need land to live on, buildings to give us shelter, crops to feed ourselves, minerals to fulfill our material needs, and so much more.
Anything accrues demand, appreciates in value, and turns into an asset when the market perceives it to be useful. Seeing as how useful and necessary real estate is, it has been in demand and a popular investment since time immemorial. Today, despite the diversification in the sort of assets that are available for investments in the market, real estate is still popular among small and big investors. It acts as a store of value and can perhaps even increase it. Despite there being a huge demand for real estate, there is a dearth of knowledge when it comes to what and how to invest in real estate. This article will tackle that issue.
Real estate covers a wide array of physical assets. With so many types of real estate to choose from, we will be going over the following forms of real estate investments:
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Residential real estate
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Commercial real estate
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Industrial real estate
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REITs
In this article, we will be going over residential real estate.
Residential real estate is the sort of real estate that we are most familiar with. It is, after all, the real estate we spend most of our time in. Our homes are residential real estate and seeing as how important it is, no wonder investors love this form of real estate.
Residential real estate can take many forms. It can be an investment you make for yourself i.e., buy yourself a house for you to live in, buy a rental property where you create a passive source of income for yourself, buy run-down houses for cheap, fix them, and sell them at a profit or rent them out.
Although buying yourself a house may not seem to be an investment to most of us, it is one of the best investments one could possibly make. Yes, it doesn’t generate passive income, but it makes up for that by its staggering appreciation in value in the market. It is also one of the cheaper ways of getting into the real estate market as the rates of interest and the security deposits demanded by banks for residential real estate are much lower than their counterparts. Combine this with the fact that a very large profit for it can be made in the future in case you want to sell it and its obvious utility in the meantime, this is might just be the best way to enter real estate. Your net worth rises, and you get to live somewhere. Win-win!
Another way to get into real estate would be to buy a rental property. It is a great source of passive income, but the requirements imposed by banks whilst obtaining a loan to finance such an investment are more expensive. Rental properties come in several forms. It can be a single-family home, multi-family home, or vacation home.
Single-family homes and multi-family homes are residential units that you rent out full time, generating a regular passive income. The thing with multi-family homes is that you can live in that real estate holding alongside your tenants, whose rent can cover your mortgage and give you some profit as well. Vacation homes are also a great investment option. You can stay for half the year and for the rest of it, you can rent it out, preferably in the form of an Airbnb. All these rental investments are a great way to increase your net worth and create a source of passive income.
Flipping homes and real estate is another great way to enter the real estate market. Flipping homes is essentially the practice of buying homes and other real estates for a lower price and later reselling it at a profit. These sorts of real estate, at the time of purchase, are quite run down and not exactly in the best shape. It is up to you to fix it up and after doing so, you can sell it for a handsome profit. However, this is a bit risky and demands a good amount of skill from investors. There might be a case wherein you buy a run-down property and don’t notice any fault with it, that you, unfortunately, didn’t fix until it’s too late. Moreover, you would find it hard to get a standard mortgage on such properties and would instead have to rely on your savings or a second mortgage based on some other property that you may own. Therefore, unless you don’t know a lot about flipping in general and don’t have access to a competent group of people who do, stay away from it. It could be an endless pit for your hard-earned money.
Another way to enter the real estate market is the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat). This is almost the same as flipping except you rent it out.
So in essence, investing in residential real estate is one of the best things you could do for yourself. Learn about it now and you will thank yourself forever.