The question, "What is real estate investing?" cannot be answered without considering first, it's textbook definition and then it's conceptual definition.
The Academic Definition
Real estate has been defined as land (or immovable property) along with anything permanently affixed to the land such as buildings, and investment is the act of using money to purchase property for the sole purpose of holding or leasing for income. It is safe to say then (combining both definitions) that real estate investing involves the acquisition of real estate (or investment in real estate) for purposes of generating income, making a profit, and acquiring wealth.
The Conceptual Definition
- Leverage In contrast to stock investments (which usually require more equity from the investor), it is possible to leverage a real estate investment (heavily). With a real estate investment, you can use other people's money to magnify your rate of return and control a much larger investment otherwise not possible.
- Tax Shelter Real estate investing provides tax benefits. There are yields on annual after-tax cash flows, equity buildup through appreciation of the asset, and cash flow after tax upon sale.
- Non-Monetary Returns Real estate investment provides pride of ownership, the security that you control ownership, and portfolio diversification.
Real estate investing is not a bed of roses, though. Real estate investment does require capital, there are risks, and rental property can be management-intensive. On the other hand, the car you drive required capital, it involves risk driving, and it certainly requires management. The difference is that a car is not a source of wealth.
How to Become a Real Estate Investor
- Develop a real estate investment goal. What do you want to achieve, and by when do you want to achieve it? What rate of return do you expect to want to receive on moneys you pull out of your home or bank account to purchase an investment property given the risk?
- Learn what returns you should look for, and how to compute them. You cannot succeed in music unless you can read music. Invest in a good real estate investing course or real estate investment software where you can learn how to run the returns and compute the formulas.
- Be wary of Get Rich schemes. There are many so-called gurus ready to teach you how to make millions with real estate investment property. But let logic be your guide; we believe that nobody who finds a gold mine publishes a map.
- Create a relationship with a real estate professional that knows the local real estate market and understands rental property. It will not advance your investment objectives to spend time with the "agent of the year" unless that person knows about investment property and is adequately prepared to help you correctly procure it. Find an agent that understands real estate investing.
What is the conclusion? That real estate investing is a business about owning a piece of ground that, when researched and purchased sensibly by impartial numbers and careful management, and with reasonable goals and caution, will likely be more valuable tomorrow than it is today.