Real Estate Investments: The Basics

While most real estate transactions involve people selling a primary residence to a buyer who wants a primary residence, not everybody buys a house to have a place to live. Many people are interested in real estate as an investment.

After all, real estate is a finite resource: there is no factory cranking out more land. When done with forethought and prudence, real estate investing can be lucrative. But when done without first analyzing a property, it can be a huge headache for all parties involved.

Basic Types of Real Estate Investment

In the early 2000s, "flipping" real estate was all the rage. With some red hot markets, investors could buy a house, make minor renovations, and quickly sell it at a handsome profit. But when the real estate bubble popped in 2008, this strategy became far less common.

Some real estate investors still use a variation on the "flipping" strategy: buying the cheapest, most run-down property in a neighborhood and making serious renovations. Theoretically, they can then sell this formerly undesirable property at the neighborhood's going rate per square foot and make a profit.

Another common type of real estate investment is rental property. In theory it sounds terrific: your tenants make your monthly payments for you! But in reality, managing rental property takes plenty of hard work.

How Property Analysis Helps with Real Estate Investment

If you want to be a serious real estate investor, you have to learn about many subjects:

• Income tax law
• Your state's real estate laws
• Property management principles
• How property is appraised
• Obtaining financing

Property analysis software helps you mathematically determine operating income based on the property's earnings once expenses are calculated. Expected rental income can be estimated based on comparable nearby properties. Investors must make an accurate determination of rent per square foot in the immediate area before determining rent on their own property.

If you’re interested, online tools are available to help you with property analysis before investing (see sidebar).

Getting Started

Most people enter the world of real estate investing by purchasing a single rental house. This is a good way for new investors to avoid biting off more than they can chew.

While some investors manage their own properties, others hire a management company to do this work. If you manage your own rental property, you will be the one getting the call at 3 a.m. when a pipe bursts. If a management company manages the property, they take care of such things.

People starting out in real estate investing are often overwhelmed with everything they have to do to be successful at it. Property analysis software can help investors understand what they are getting into beforehand and make the wisest decision about buying an investment property.

FSBOs and Real Estate Investment

For Sale by Owner properties are often good properties for investors, particularly for experienced investors. Without real estate commissions muddying up negotiations, it's easier to find a price agreeable to both parties.

If you're interested in selling a home as a FSBO property, click here to get started with your listing and you'll be one day closer to making that sale!