Let’s look into how beginner investors can best equip themselves to get started on their real estate investing journey.
The Characteristics of Real Estate Investing
Real estate sets itself apart from other investment opportunities because of four distinct economic characteristics.
- Scarcity
- Improvements
- Performance of investment
- Location
It’s worth your while to get a stronger familiarity with what real estate investing is. After all, you want to know what you’re getting into if you’re going to invest your money into real estate assets—down to the details.
Scarcity
As a general rule, real estate tends to be a scarce asset. On the one hand, the land is a finite resource that becomes more scarce as development in a given area continues. What’s more, the development of new real estate properties can take prolonged periods of time.
New housing units, commercial spaces, and other bankable real estate investments are relatively scarce compared to other asset classes.
This inherent scarcity can help keep real estate assets operating at a stable level, making for more reliable investments.
Improvements
Real estate has the advantage of having implicit potential for the kind of improvement that drives up its value.
Everything from developing empty plots of land to making renovations on an already existing property gives investors the opportunity to significantly boost the value of a real estate asset. Because the property can be improved, real estate investors have more control over the value of their assets.
Investors can increase the objective value of their assets by making investments in the asset through improvements.
Permanence of Investment
Many improvements made to land or property are virtually permanent. Parcels of land connected to intractable improvements have a near-permanent increase in their value. This increase is due to the extreme difficulty of removing these improvements and their long-term functional performance.
This permanence to real estate investments makes them stronger long-term investments. The permanent improvements are foundational value points of the property that investors can count on.
Location
The definitive characteristic of real estate assets is their fixed nature—their location. Location is a seminal facet that drives the value of a real estate asset. Two properties could be virtually identical, but their location could make a world of difference in their value.
The square footage of real estate in Los Angeles will be vastly more valuable than the same square footage in a place like rural Kansas, for example. The locational component that drives a real estate asset’s value allows investors to make smarter decisions on their investment.
Determining the strength of a location’s value or identifying trends that predict one location’s value to improve in the near future gives investors the chance to make extremely lucrative investments.
These are the core economic characteristics of real estate. Let’s look into the types of real estate investors can buy into.
4 Types of Real Estate
Another unique feature of real estate investing is the asset types investors can choose. Here are the four main types where investors can potentially make their investment.
- Residential real estate
- Commercial real estate
- Industrial real estate
- Raw land
Residential
Residential real estate is the most familiar type of real estate to beginner investors—whether you’re renting or you own your own living space, you are necessarily familiar with residential real estate at some level.
Residential real estate pertains to property types developed and zoned for usage as a living space. Everything from condos, duplexes, townhouses, single-family houses, and multi-family homes are considered residential properties.
Their ubiquity makes residential real estate one of the most common avenues for real estate investment. Residential properties can earn investors an income in a variety of ways. Property rental income and flipping houses are two common examples of how residential properties can be utilized to help investors build wealth.
Additionally, residential real estate is an investment regardless of your intention with purchasing the property. Your primary residence may not seem like an asset to cash out, but keep in mind that your position as a homeowner positions you to generate a lot of money in both the short-term and long-term housing market.
You could eventually sell and use the extra capital to pursue house flipping projects or other financial endeavors. On the other hand, depending on the property, you could keep it and begin renting space.
Commercial Real Estate
Commercial real estate refers to properties used by businesses, usually in a consumer-facing fashion.
This type of real estate has the most diverse functions it serves investors. Commercial real estate could refer to gas stations, retail storefronts, medical facilities, hotels and motels, office buildings, apartment buildings, restaurants, grocery stores, malls, and theaters.
There are many different business types commercial real estate can serve. Depending on how investors decide to get involved with commercial real estate, they can be more selective with their investment—investing in specific businesses like retail, grocery stores, and so on.
Industrial Real Estate
Like commercial real estate, industrial real estate services businesses differ in where they lie in the operational chain of a business. Commercial real estate properties tend to earn an income by providing a space for a product or service.
Industrial properties serve business operations at earlier points in the supply chain. Examples of industrial real estate include warehouses, factories, laboratories, storage facilities, and power plants.
Commercial properties describe where the product is sold; industrial properties describe where the product is made.
Compared to residential and commercial real estate, industrial properties aren’t as frequent an investment opportunity, especially for individual beginner investors.
The average rate for L.A. industrial property in 2020 was $11 per square foot. Considering how large these properties can get, that can add up fast, making them less accessible to the average investor.
Raw Land
This type of property describes empty lots, undeveloped land, or resource-rich land parcels like timberland or mining areas.
With such a wide range of sizes and property functions, raw land can either be extremely cheap or extremely expensive.
Empty lots and undeveloped property present improvement opportunities for investors, allowing them to transform the property’s value drastically.
Tips to Get Started in Real Estate Investing
Here are a few tips that will help you better prepare yourself for your first steps into the world of real estate investing.
- Assess your finances
- Do your research
- Identify opportune market trends
- Find the best type of investment
- Consult a professional
1. Assess Your Finances
As with any financial decision, assess your finances before you make any decisions. Before you even consider putting up the money to invest in real estate, you should make a sober evaluation of your overall financial health.
Taking the time to do a shrewd analysis of your finances is a baseline assurance that you are using the right amount of capital to secure yourself an optimal return while minimizing the risks of putting undue strain on your finances.
2. Do Your Research
Investing, while a lucrative opportunity to transform your finances, gives back what you put into it—if it were easy, everybody would be rich.
The fact of the matter is that in order to succeed in real estate investing or any investing endeavor, you’ve got to know what you’re doing.
Research the real estate investments you’re considering, mark their performance and return rates and invest wisely. This is the type of decision-making that ensures you’re putting your money in the right places.
Finding the resources that promote smarter real estate choices can be difficult. Christina has compiled a valuable resource of educational material that helps beginner investors better understand the market.
3. Identify Opportune Market Trends
Real estate investing, like any type of investment, hinders finding the right time to buy in and the right time to sell. That’s what’s made Christina’s strategy so effective.
Real estate assets are a reliable hedge against rising inflation, for example. As inflation continues to rise in the U.S. and across the world, real estate is becoming an increasingly promising way for investors to protect their wealth and seize the chance to make reliable gains as prices rise across sectors.
Real estate reliably appreciates over time. As prices rise, real estate prices only increase, giving real estate investors a prime opportunity to protect their wealth. Identifying opportune trends like real estate’s hedge potential against inflation empowers investors with the information to make better-investing decisions.
The more investors know about how market trends affect real estate, the better equipped they are to make more advantageous investments at the right time.
4. Find The Best Type of Investment
Just as there are many different types of real estate assets—residential, commercial, and so on—there are plenty of real estates investing options available to beginner investors.
Private ownership options are lucrative options. But they come with significant drawbacks that deter investors just stepping into the world of real estate investing.
Private ownership opportunities require serious upfront capital. The most accessible avenue for individual property owners—residential properties—continues to explode in price; this is a good sign that these assets are highly valuable, but rising prices make it even more difficult for beginner investors to wade into private ownership.
Enterprising investors don’t need to put up the high upfront costs required in private ownership investments in order to get into real estate. Instead of owning rental properties, investors could consider real estate investment trusts (REITs) or private equity funds as ways to generate the cash flow of property management as passive income.
Private equity real estate funds offer new investors the opportunity to buy into reliable funds that drastically reduce the upfront costs necessary to get started in real estate investment. You don’t need to worry about maintaining properties, finding tenants, or liquidating your assets.
Private equity funds make investing in otherwise inaccessible investment properties like high-value residential properties, commercial properties, and even industrial properties possible for accredited investors.
5. Consult a Professional Firm
Enterprising investors have never had a better opportunity to learn not just the basics of real estate investing but the finer details that professional firms abide by as well. Just check out Christina’s series of promoted podcasts and webinars about real estate investing strategies.
But if you’re a beginner feeling stuck about how to start, one of the best ways to help yourself along your real estate investing journey is simply reaching out to professional firms with track records that demonstrate their investing insights.
Christina: We’re Real Estate Professionals
For over four decades, Christina has thrived in one of the most competitive real estate markets in the country, Los Angeles’s Westside region.
We’ve made this area’s iconic neighborhoods into our niche real estate field. Beverly Hills, Santa Monica, Malibu, and other L.A. neighborhoods with name recognition make up the hyper-prime real estate assets in our portfolio.
Invest with Christina and get great returns from this exploding market.
Sources:
Real Estate Meaning | WallStreet Mojo
Here’s What You Need To Know About America’s Super-Hot Inflation | New York Times