Valued at more than $230 trillion, real estate investments are the world’s largest asset class and one of the most entrepreneurial fields, drawing people in with the promise of predictable, long-term passive income, positive returns on investments, and favorable tax advantages.
Because real estate is often considered a low-risk investment, many are quick to jump in with expectations of turning a quick profit. Popular television shows on buying investment property and flipping houses feed into the idea that investing in real estate is fun and easy.
However, not all real estate investments are low risk. Some require specialized real estate skills and many require patience and time to realize a positive return on investment.
If you’re considering becoming a real estate investor and entrepreneur, this guide to the real estate industry offers an overview of real estate investing for beginners and the five skills needed for successful real estate investment careers.
Types of Real Estate
Not all real estate is the same — properties are often zoned for specific uses. Before you become an investor, it is important to understand the different types of real estate and typical zoning regulations to guide you on what to include in your investment portfolio.
Residential real estate is property that has been specifically zoned for living in. This includes single- and multi-family homes and apartment buildings.
Commercial property is real estate that has been zoned for businesses, typically industrial or retail. This could include shopping malls, office buildings, warehouses, and manufacturing sites.
Land refers to the ground surface and extends both below the earth’s surface and up into higher airspace. It encompasses any structures, water, plants, or minerals located on the land. Land can also be zoned as residential, commercial, industrial, agricultural, or other specific local zoning designations. Developers may petition local governments to change the zoning laws for land that they own (or want to buy).
Potential Career Paths for Aspiring Real Estate Professionals
There are so many career paths in real estate, but before you jump in, it’s important to understand that there is a difference between investing in and working in real estate.
When you work in real estate, you don’t put your own money into properties. Instead, you can sell a property for different owners, real estate development companies, or investment groups; manage properties; or help finance properties.
Real Estate Agent
A good real estate agent is an integral part of successful property sales. As licensed professionals, real estate agents are hired by individuals or business groups who want to buy or sell properties to help guide complicated real estate transactions. They typically work on commission.
If you want to become a real estate agent, your responsibilities include:
- Understanding the local market. Based on your knowledge of the local market, you will help set asking prices to meet your client’s specific needs.
- Marketing properties. You will advise your client on how to make their properties attractive (such as staging homes or suggesting cosmetic upgrades). You should also have the tools, experience, and contacts to market properties to a wider audience.
- Handling the paperwork. Buying or selling property can be complicated – and real estate transactions require a lot of paperwork. As a real estate agent, you will know what documentation is required, and in many cases, can draw up the contract.
- Negotiating price. Buying and selling real estate often involves negotiations, which you will facilitate.
Property managers are hired by property owners to manage the day-to-day property operations. As a property manager, your responsibilities could include:
- Finding prospective renters
- Collecting deposits and rent
- Handling maintenance requests
- Checking on properties if the owners live out of the area
Real Estate Investor
Real estate investors put money into properties in the hopes of selling that investment for a profit at a future date. If you choose to be a real estate investor, you could own one or more properties, or pool your money with other investors into a fund that includes several properties. You earn money when properties in the fund are sold. You may also earn income from the rental of the property while holding the asset.
As an investor, you could have a full-time job in a different industry or invest in other types of businesses.
Earning Money as a Real Estate Investor
Real estate investors can earn money in the real estate market even during times of rising interest rates. How you choose to invest will depend on your risk tolerance and available investment funds. There are several ways to earn money by investing in real estate.
Real estate generally appreciates in value over time — your profit comes from selling a property at a higher value than what you bought it for. Savvy investors buy properties in up-and-coming neighborhoods so their property appreciates at a higher rate over the long term. Property appreciation is generally a long-term investment that offers a one-time pay-out when the property is sold.
For predictable, regular cash flow and passive income, you could buy properties to rent out — either through long-term leases or as short-term vacation rentals. Choosing this investment strategy means you become a landlord, which makes you responsible for collecting the rent or making emergency repairs. You could also choose to work with property management companies to manage your rental investment property.
Flipping houses has grown in popularity due to television shows that make it look easy and lucrative. To make money flipping houses, you could buy properties that are run down or outdated at a low price for the local market, then renovate the houses quickly and sell at a higher price. Flipping houses can have big profits, but it helps to know how to make repairs and do renovations on your own. Having good relationships with contractors who can help you estimate the costs of the repairs and make the repairs at a reasonable price is also helpful.
Real Estate Investment Trusts
If you don’t want to own property but still want to generate income from the lucrative real estate market, you can invest in real estate investment trusts (REITs), which act like mutual funds for commercial real estate. Typically, REITs are owned by a company that owns or finances commercial property. You and other individuals invest in the RIET, which is publicly traded, making it very similar to investing in the stock market.
If the REIT makes money, you earn dividends, which you can cash out or reinvest. The upside of investing in a REIT is that they don’t require a large up-front investment and you can earn regular dividends. However, you won’t benefit from property appreciation and you will be subject to taxes when you cash out your dividends.
Ready to Become a Real Estate Investor? These 5 Skills Will Help You Find Success.
While anyone can invest in real estate, it helps to have some fundamental real estate skills and knowledge to find success and earn money. If you are a beginner, here are five skills you should have to find success in real estate investment.
1. A Familiarity with Real Estate Terminology
As with most industries, real estate uses specific terminology. It’s helpful to know and understand these terms when you decide to become an investor. This guide has explained many common terms, including REITs, appreciation, and flipping. Here are a few other terms you should know when investing in real estate:
- Cash Flow. Your cash flow is calculated by the amount of money generated by a property minus the operating costs and expenses.
- Due Diligence. Real estate is often a large investment, so it’s important to do your research about the property, including reviewing documents, estimating your operating expenses, and evaluating risks. This research is called due diligence.
- HOA. This is an acronym for Home Owners Association, which oversees the physical appearance of many neighborhoods and condominiums. When you buy an investment property in an HOA community, you are subject to the HOA rules. It’s important to know those rules, as they could impact your ability to rent the property or make renovations. You may also have to include HOA requirements to your rental agreement (such as maintaining the lawn).
- Turnkey Property. A turnkey property is a property that is move-in ready.
- Inspection Contingency. Buyers and investors can include this in a contract, which means that the buyer must have the home inspected and review the report prior to the sale. The price can be renegotiated based on the findings of the inspection.
If you are planning to purchase a property as part of your investment strategy, you should also understand the different types of home mortgages, including adjustable rate, interest only, and fixed rate mortgages.
2. The Willingness to Make Long Term, Calculated Decisions
According to Forbes, real estate investment is one of the safest types of investments. However, they’re generally long-term, and you should research the properties and locations in which you are investing. Doing your due diligence prior to making an investment is critical, along with having a long-term strategy for realizing a return on your investment.
3. A Strong Social Media Presence
Investing in real estate is a popular pursuit, which means you must be quick to jump on opportunities. Having a strong social media presence can help you network with fellow investors, discover investment property opportunities quickly, keep up-to-date with the latest news in the real estate market industry, rent your property, and sell when you are ready.
4. Soft Skills
Because real estate investors spend a great deal of time interacting with others, it helps to have certain soft skills in addition to an understanding of the real estate industry. Soft skills include excellent written and verbal communication skills to maintain relationships. You should also develop good negotiation, problem solving, and organization skills. Having a willingness to learn will help you in the beginning of your investment career, along with being able to adapt to changing market situations.
5. Valuable Credentials
If you want to start investing in real estate, it’s a good idea to take some classes or enroll in a certificate program to help you understand the industry and market forces, learn how to build an investment strategy, and understand the financial aspects of investing in real estate. Certificate program classes are generally open to anyone, regardless of age, background, or current career, and are scheduled at times that are convenient for busy working professionals.
Take The Next Step Toward Becoming a Successful Real Estate Investor
If you are ready to become a real estate investor, Harvard DCE Professional & Executive Development offers Real Estate Investments: Assets, Markets, and Current Trends, a two-day program where you will learn the fundamentals of real estate assets, how to develop investment strategies, how to raise capital, and more.
You can also earn a Real Estate Investment Graduate Certificate from Harvard Extension School, which includes four courses that cover different real estate investment opportunities along with the forces that drive property values and the life cycle of buildings and neighborhoods. The program offers hands-on experience for creating financial models, analyzing cash flows, and measuring returns on investments.
There is money to be made in real estate with the right investment approach based on your situation and goals. Develop tactical, real-world knowledge and skills for investing in real estate by earning a real estate investment certificate.
Enroll today to start your journey in real estate investing!
As an experienced real estate investor and enthusiast with a deep understanding of the industry, I can attest to the complexities and nuances involved in navigating the world of real estate investments. My expertise stems from years of active involvement in various aspects of real estate, including property acquisition, management, and portfolio diversification.
Real estate investments, valued at over $230 trillion, constitute the largest asset class globally, offering promising opportunities for passive income, capital appreciation, and favorable tax benefits. However, contrary to popular belief, successful real estate investing demands more than mere enthusiasm or quick profit-seeking strategies. It necessitates a comprehensive understanding of market dynamics, property valuation methods, and risk management techniques.
Let's delve into the concepts covered in the article and provide further insights:
Types of Real Estate:
- Residential: Properties designated for living purposes, including single-family homes, condominiums, and apartment complexes.
- Commercial Property: Real estate intended for business operations, such as office buildings, retail spaces, industrial facilities, and warehouses.
- Land: The ground surface and its associated natural resources, which can be zoned for various purposes like residential, commercial, agricultural, or industrial use.
Potential Career Paths:
- Real Estate Agent: Licensed professionals facilitating property transactions for buyers and sellers, assisting in market analysis, marketing properties, and handling paperwork.
- Property Manager: Responsible for overseeing day-to-day operations, tenant management, rent collection, and property maintenance on behalf of property owners.
- Real Estate Investor: Individuals or groups investing in properties with the objective of generating profits through appreciation, rental income, or property flipping.
Earning Money as a Real Estate Investor:
- Property Appreciation: Profits realized from the increase in property value over time.
- Rental Income: Regular cash flow generated from leasing properties to tenants.
- Property Flipping: Buying distressed properties, renovating them, and selling at a higher price for quick profits.
- Real Estate Investment Trusts (REITs): Investment vehicles allowing investors to participate in real estate markets without direct property ownership, offering dividends from commercial property portfolios.
Five Skills for Real Estate Investment Success:
- Familiarity with Real Estate Terminology: Understanding terms like cash flow, due diligence, HOA, turnkey property, and inspection contingency is crucial.
- Long-term Decision Making: Making calculated investment decisions based on thorough research and a clear understanding of market trends.
- Strong Social Media Presence: Leveraging social platforms for networking, market insights, property listings, and brand promotion.
- Soft Skills: Effective communication, negotiation, problem-solving, and adaptability skills to navigate diverse real estate scenarios.
- Valuable Credentials: Pursuing relevant education, certifications, or training programs to enhance industry knowledge and investment acumen.
By mastering these concepts and skills, aspiring real estate investors can position themselves for success in a dynamic and competitive market landscape. Whether you're considering a career in real estate or seeking to augment your investment portfolio, cultivating a deep understanding of these fundamentals is paramount to achieving your financial objectives.