Investment Real Estate PDF

**What Is Investment Real Estate?** Investment real estate is real estate that generates income or is otherwise intended for investment purposes. It is common for investors to own multiple pieces of real estate, one of which serves as a primary residence while the others are used to generate rental...

**What Is Investment Real Estate?** Investment real estate is real estate that generates income or is otherwise intended for investment purposes. It is common for investors to own multiple pieces of real estate, one of which serves as a primary residence while the others are used to generate rental income and profits through price appreciation. The tax implications for investment [real estate](https://www.investopedia.com/terms/r/realestate.asp) are often different than those for residential real estate. - Understanding Investment Real Estate - Investment real estate can provide opportunities for financial gains to investors. Owning investment properties can help build wealth, increase income, and help diversify an investment portfolio [Two types of properties in the real estate market] - Residential - Investment real estate can include residential land and properties. Residential investments typically involve homes, townhouses, and condominiums. Residential properties can be multi-family or single-family units. - Commercial - An investment in commercial real estate might involve the ownership of retail stores, office buildings, or storage facilities and warehouses. Investment in commercial real estate is typically more involved and costly than residential investments - **Benefits to Investment Real Estate** The benefits of investing in real estate are numerous and can vary depending on the goal of the investor. 1. How much money to invest in a real estate property can depend on the investor\'s risk tolerance. 2. Also, an investor\'s time horizon is important to consider when making such a large purchase or investment.  - Some investors invest in real estate to [diversify their money away from the stock market](https://www.investopedia.com/articles/stocks/11/real-estate-infrastructure-asset-allocation.asp). Other investors want their money invested in physical assets instead of securities, such as [equities](https://www.investopedia.com/terms/e/equity.asp) or [bonds](https://www.investopedia.com/terms/b/bond.asp). Two of the primary benefits of investing in real estate, both residential and commercial, include: - Capital Appreciation - Investment properties can realize [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp) for investors due to property value increases over time. A capital gain is a profit that results from the difference between the original purchase price and the sale price of the property. Of course, investors can only realize the capital gain after they sell it.  - Rental Income - Many investors buy real estate for the steady stream of income that it provides. Whether it\'s a residential or a commercial property, renters or occupants pay the owner each month until the rental agreement or lease expires. **Ways Investment Real Estate Can Be Managed** Leveraging investment real estate can follow numerous paths. 1. An investor might join a [real estate investment group](https://www.investopedia.com/terms/r/reig.asp) that pools its funds to acquire properties. The owner or owners of investment property may hire property managers to oversee the day-to-day upkeep and rent collection for a piece of real estate or an entire portfolio. 2. A real estate investor could also look to serve on the lending or funding side of projects with an expectation of a return on their investment. 3. The owner of the property might seek financing to cover the cost to improve the real estate and make it more attractive to tenants. 4. A real estate investor could acquire a property based on an expectation that demand for space will increase because of external factors. **Risks to Investment Real Estate** - Real estate can involve a [significant amount of upfront capital and debt](https://www.investopedia.com/articles/investing/122415/why-real-estate-risky-investment.asp) in the form of borrowing from a bank. Also, it doesn\'t provide an immediate financial gain, meaning it can take many years to make a profit or get back the initial investment. - Economic downturns can cause difficulty in finding tenants, particularly with commercial properties. If businesses are going out of business or losing money, they may be unable to pay their rent. - There are also [risks](https://www.investopedia.com/terms/r/risk.asp) to investing in residential properties. Difficult situations can arise when managing tenants. Cost overruns for refurbishing or repairs can occur, and the investor may need to commit additional funds The good news is that real estate investors can hire a property manager to manage and oversee the repairs and collection of rent payments for both local and [out-of-town investment properties](https://www.investopedia.com/articles/mortgages-real-estate/10/out-of-state-property.asp). However, the cost of a property manager will eat into the monthly income received, which would translate into a longer time before the property turns a profit and the investor gets the initial investment back. Key Takeaways: - Investment real estate can provide opportunities for investors to build wealth and increase income. - Residential investments typically involve homes, townhouses, and condominiums. - An investment in commercial real estate might involve the ownership of retail stores, office buildings, or storage facilities and warehouses. - Investment real estate can create capital gains for investors due to increases in property value as well as provide rental income. Source: