Beginning Real Estate Investing – How Does Real Estate Investing Work?

How does real estate investing work?

Simply buying real estate is not real estate investing.

Strategically sorting through many properties for sale and purchasing that one in many that meets your goals. Every real estate transaction should have one or more of the following to be called real estate investing, rather than real estate speculation:

  • Income
  • Growth
  • Tax Advantages
  • Leverage

Here are 4 simple tips to keep in mind as you begin to educate yourself in the process of real estate investing:

  1. Only invest in properties that deliver Instant Equity or strong cash flow. Preferably the property you choose to invest in will deliver both! “Instant Equity” occurs when you change the use of a property, such as when you buy a distressed property and rehab it to excellent condition. Cash flow is generated from leasing your property to others which generates a stream of income.
  2. Learn to use OPM – Most investments usually require you to invest all of your own money for the return. In real estate investing, you can leverage other people’s money to invest in real estate. If you invest $100,000 of your own money in a $100,000 property and get a $10,000 annual return, you’ve gotten a ROI (return on your investment) of 10% – However, on the same $100,000, if you invest only $20,000 (20%) of your own money and get a loan for the rest ($80,000) and you generate a $5,000 annual return, you’ve gotten a 25% return on your original investment of $20,000.
  3. Begin your real estate investing with clear investment goals. Remember, just buying property isn’t investment – without clear goals it could be more speculation and that is too risky for most savvy investors. You or your team need to have clear goals to make the investment a one.
  4. This brings me to my final tip, which is, “Experience Pays” To be successful in real estate investing or nearly any other investment, you’ll want to rely on either your own experience or the experience of others. If you don’t have the knowledge or experience, you can carefully seek the help of others who do and leverage their experience for your own personal gain