The Basics of Real Estate: Beginner’s Guide

Moneymagpie Team 14th Nov 2022 No Comments

Reading Time: 4 minutes

This is for our readers based in America

Real estate investment isn’t something you should jump into without proper knowledge. There are lots of misconceptions that stem from the misinformation most people have. Investing in real estate requires carefully studying the market and business savviness to maximize gains and secure property. Real estate is profitable if you have a comparative analysis of how and when to invest. It’s not just about investing money; it’s more about following the process.

Why Do People Invest in Real Estate
4 Major Types of Real Estate
Benefits of Investing in Real Estate
How to Invest in Real Estate
Some Basic Terms Used in Real Estate
Conclusion

Why Do People Invest in Real Estate?

Most people invest in real estate to generate monthly revenue. Inflation risk may cause high prices and interest rates to skyrocket, but the real estate market can accommodate all. According to Ofirio, real estate investment tends to appreciate as time goes by. Homeowners can charge high rent prices and earn more by ensuring payment of taxes and signing for insurance. However, your house or apartment’s value must be commensurate with the rental cost.

4 Major Types of Real Estate

You’ll find it almost impossible to invest in real estate if you don’t fully grasp what it means. It isn’t just about purchasing a townhouse, standalone home, or condo; you need comprehensive knowledge. Real estate is divided into four different types.

Residential real estate involves purchasing condos, townhomes, or standalone houses.
Commercial real estate entails buildings used for commercial activities, such as offices, malls, and multi-purpose buildings, which might be both residential and commercial.
Industrial real estate is simply concerned with buildings for industrial purposes, such as factories, laboratories, and other industries.
Land real estate is investing in land properties such as plain land or land used for other purposes.

Benefits of Investing in Real Estate

Real estate investment is one of the safest and most lucrative investments; it protects you from inflation and provides tax deduction benefits. One major benefit is that you can write off tax payments. You can also add depreciation costs to your property, making you earn more. However, you will have to give a percentage of the depreciation claimed on the property.

After taking a mortgage, you can reduce the interest paid in debt for up to $750,000 of debt incurred. Tax deductions can be made on home sales for up to $250,000 or $500,000 for joint individuals. However, such individuals must have inhabited the house for up to 2 years in 5 years and must not have received any capital gains tax inclusive from the property sale.

How to Invest in Real Estate

Investing in real estate requires a step-by-step process and a careful study of the market, whether you are investing solely for personal living or to generate profit. While purchasing a home to live in is easier, renting it out is more complex. Below are some of the ways you can invest in real estate.

Purchasing a property: If you want to buy real estate to live in, you can simply contact real estate agents or through real estate investment trusts. You can buy shares from the company.
Flipping houses: This includes holding real estate for a short period, majorly three to four months, and selling after for a profit. You can either buy a property that needs renovation and do the needful while you sell it for a larger amount or buy it and sell it later. However, this comes with the risk of low chances of profit.
Crowdfunding: This takes the form of an online investment that allows you to contribute money to other people to purchase real estate. This is a lot easier because you can own a property with a low budget.

Whichever option you go for, don’t overlook the importance of a legal practitioner. Every legal document should be thoroughly scrutinized to avoid unwanted situations.

Some Basic Terms Used in Real Estate

You need to understand real estate terms for a more robust knowledge. Here are some examples.

Offer: This is a written bid made by a party, usually the selling party to the buying party. It contains the terms and conditions as well as the sale price.
Counteroffer: is usually made by the buying party. It contains the buyer’s proposal as opposed to or in conjunction with the seller.
Contract: This is usually a written agreement between two parties where the meeting of minds has been made, and the offer and acceptance have been established and agreed upon by both parties.
Listing: This property is offered to the world for sale; it contains everything you need to know about the property displayed for sale.
Listing agent: The agent representing the real owner does all the negotiations needed for sale.
Pre-qualified: It contains the total amount to be borrowed by a buyer and limits.
Adjustable rate mortgage: As the name implies, the interest rate can be adjusted over time.

Conclusion

The benefits of real estate investment are numerous if you can manage your risks properly and commit to staying up-to-date with the market. However, don’t let the required efforts discourage you from investing in real estate. If you stay the course, you’ll reap the proceeds for life!

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.

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