Throughout history, land has always played a significant role in the economy, as one of the leading means to build wealth. After all, everyone needs a place to live – that will never change. That’s why investing in property is a valuable addition to any portfolio.

For investors considering expanding their portfolio, here are some of the most common questions to know before getting started.

25 Real-Estate Investment Questions Answered

1. What is real estate investing?

It covers all the possible ways of making money work for you via property. Whether you invest in realty-related stocks or invest time, funds, and energy into developing property, these investments provide an exceptional form of income either through short-term and long-term strategies.

2. What kinds of investments are there?

Investing can come in various forms, like mutual fund-like REITs, buying property and holding until it appreciates to sell for profit, buying and fixing a property, buying a rental property to rent out, renting out one’s own home while living there as well, participating in crowdfunding projects, or buying a vacation rental. There are many others, as well as innovative investing strategies.

3. What are REITs?

REITs work like any other stocks that pay dividends. With better returns than fixed income, they are illiquid and offer the most passive cash flow. Investors can have a share of the trust without dealing with physical property management. That being said, they are diverse, coming in different types that investors should consider carefully before choosing.

4. How to assess if I should invest in a REIT?

REITs offer many benefits like liquidity, portfolio diversification, consistent returns, as well long-term yields from property appreciation.

That being said, not all REITs are equal. Like any other stock, they require a good eye for choosing the right one for a good strategy.

Alongside investigating the property, it’s important to research the following:

• the company’s background
• company balance sheets
• years of experience in property management
• investigate the property type the REIT specializes in and its prospects for the future.
• track record of the management team in that property type.

5. What is the difference between public and private REITs?

Public trusts are registered on the Securities and Exchange Commission (SEC), meaning they are alongside other stocks on public security exchanges where anyone can access and trade them.

Private REITs are unlisted on public stock exchanges and are therefore less liquid, and only accredited investors have access to them. Accredited investors must have an income of at least $200,000 for the past two years, among other qualifications.

6. What kinds of property are available under REITs?

There exist different types of trusts that are defined by the property:

• Residential
• Retail
• Office property
• Healthcare
• Multifamily (apartments)
• Hotels

7. What is an equity REIT?

Investing in an equity trust means you are buying a share of a physical property. Equity REITs pay shareholders dividends from rent profit, and there are far more equity stocks available.

8. What is a mortgage REIT?

With mortgage REITs (or mREITs), you are contributing to funding or financing for a property. They provide income from the interest of mortgage-backed securities.

*9. What is an REIG?

An REIG is when a corporation owns and manages the property, either by purchasing or using capital to build it. Investors can then buy a piece of that property, owning at least one unit of it.

In this way, investors get to call a part of the property theirs, without the need to manage it. Instead, the corporation manages the upkeep, advertising of vacancies, dealings with tenants, repairs, and so on. The total rent from all tenants is divided equally among all investors involved in the group, even if a unit is unoccupied.

10. How much capital do I need to start investing in real estate?

Due to the variety of methods, the upfront costs vary.

Some of the more affordable ways include REITs and crowdfunding since investors only pay a smaller percentage of the total property value alongside other investors. Usually, the minimum funds needed for these investments are $500-1000, depending on the platform.

Other investments that require financing your property will require sufficient financing for the down payment, mortgage, as well as funds to renovate, develop, or maintain it.

11. How does crowdfunding work?

Crowdfunding is when multiple investors can contribute to property development projects. Usually, this occurs on platforms like Fundrise, CrowdStreet, and RealtyMogul. The advantage of crowdfunding is investors can diversify their portfolio with multiple projects, and it requires much less funding per investor than it would be to take charge of a project on one’s own.

On the other hand, crowdfunding is a long-term strategy, so it’s not for those looking to have liquid returns at the ready.

12. When is the right time to buy a property?

The best time to buy any property is during a buyer’s market when the amount of property available in a particular location outweighs the need. For example, if more people are moving out of an area, vacancies in houses and apartments will be more abundant, thus selling for lower prices.

13. When is it the right time to sell a property?

During a seller’s market is most appropriate to advertise a property, when the market has risen in an area due to increased demand.

14. What type of investment is the lowest risk?

Low-risk investing includes buying rental properties and buying-and-holding before selling when the property value appreciates. REITs are also relatively low-risk because they are the most liquid of methods. The lowest risk would be a REIT that invests only in properties with triple AAA leases secured by major real estate corporations. Keep in mind that some trusts, (i.e. commercial) may be more volatile and at higher risk than others.

15. What types of investing have the highest risk?

Flipping a house can get risky due to the immense cost of mortgage and renovations, as well as the time constraints. The longer fixing up a house takes, the more money you lose.

Compared to flipping, building a spec house (building a new house that is ready for buyers to move into) might be less risky due to the full transparency of the costs required to build. However, spec houses are also high risk due to unseen market fluctuations.

As for crowdfunding and joining an REIG, while the strategies are long-term and illiquid, as, with any venture, there is a chance of failure.

16. What type of strategy leads to most capital gains?

Buying residential property and becoming a landlord is a way to receive immediate “passive” income. Receiving rent from tenants every month can be a major source of cash flow.

However, it requires much upfront financing, as well as the ability to find tenants, fix and improve any damages, and attend to tenants’ needs. Hiring a property manager can take this load off, although it will add to your expenses.

17. What investments result in short-term returns?

For the quickest way to start receiving income with investments involve renting out a property you already own, buying a rental property, or house hacking.

18. What are the long-term investments?

Most properties require a long-term commitment, from a minimum of 6-12 months with flipping or buy-to-hold, with others (REITs, REIGs, crowdfunding) requiring a good 5 years at least to see a substantial return. The holding period is also determined by National economic cycles.

19. How does house flipping work?

House flipping is a short-term strategy that involves buying a property at a low value and improving it enough to resell for profit. The biggest advantage of house flipping is that it can result in considerable returns.

However, it carries some risks due to several reasons. First, house flipping needs much more time, financing, and resources to plan, develop, and carry out house renovations. The time that it takes to develop the property becomes more costly due to mortgages. House flipping is more applicable to experienced investors with in-depth knowledge of market and property assessment, managing the development process, and sufficient funds to hold them over before it’s time to sell.

20. Who do I need on my property development team?

To fix up a house as efficiently as possible may require the experience and skill of more seasoned professionals, like a realtor, a construction contractor, an accountant, a property inspector, a surveyor, and others.

21. What is house hacking vs. renting out your home?

Renting out one’s home is a fast way to receive rental income with a property you already live in. House hacking is similar, only you find a multi-unit property to reside in it while simultaneously renting out other units.

The key is to ensure the cost of rent of the other units surpasses the cost of maintaining the property so that there is a sufficient profit every month. Investors can choose to hire a property manager to oversee maintenance and repairs for other tenants.

22. How to assess the property market?

Evaluating the market requires a level of know-how and much research. This means scoping the neighborhood, looking at the average price point of properties for sale, recently purchased properties, and the demand based on job opportunities. Evaluating a market is a combination of art and science.

23. How can I invest in commercial or retail property?

Investing in retail REITs usually means becoming a shareholder of a property that holds any sort of business, from grocery to clothing stores.

Retail property can be a risky decision without proper research into the market. Many malls and multi-unit retail property are losing value today due to the increase in online shopping. When stores go bankrupt due to poor sales, it’s difficult to find more tenants, leading to either a loss in dividend income or a need to create new uses for vacant spaces.

Additionally, the commercial and retail industry was struggling before Covid and now the future is even more perilous. So in our capitalist economy, major investors will create vulture funds to buy the failed properties at bargain prices for conversion to alternative uses like medical facilities, condos, apartments, storage spaces, entertainment spaces, etc.

24. What is the purpose of a realtor?

Investors starting may benefit from a realtor who is well-adept at gauging markets, assessing properties, finding potential properties, and providing consultation before embarking on a plan. Hiring a realtor can decrease the time needed in house flipping or buying to let.

25. How does investing in a vacation rental work?

By purchasing a vacation property in a location thriving with tourism, you can get a substantial passive income from renting it out. Because the Revenue from a Vacation Rental per week is considerably more than one for a month or certainly annually your income should cover your costs and maybe contribute profits to cover some mortgage debt.

These basics only scratch the surface of the knowledge required to grow financially through real estate. If you want to create a strong investment strategy based on your needs, Contact Chelsea Oelker, Realtor at Michael Saunders and Company, Anna Maria Island.

Sources used:

https://www.propertydevelopmentsystem.com/property-development-process/property-development-team/

https://www.investopedia.com/articles/mortgages-real-estate/10/real-estate-investment-trust-reit.asp

https://www.nerdwallet.com/article/investing/5-ways-to-invest-in-real-estate

https://www.investopedia.com/investing/simple-ways-invest-real-estate/

https://www.fool.com/millionacres/real-estate-investing/articles/9-best-ways-invest-real-estate/