Real Estate Investment 101

by Elias Aoun

Your first real estate investment property is a critical move in your real estate career.

Investing in real estate has become popular over the last 50 years and has become a common investment vehicle.

The Wealthiest people own Real Estate.

The real estate market has plenty of opportunities and buying and owning real estate is a lot more complicated. When you are planning your real estate investment, one of your first tasks is to decide what kind of real estate market is appropriate for you.

Investors are big players in the real estate, and they‘re expected to continue to have a strong role in the market in the coming years.
Different exposure produces varying level of risk and returns. Your choice will also influence the means by which you acquire the real estate.
I will be discussing the private market income producing properties/ multi- family residential properties.

The Private Market

The private market you would be purchasing a direct interest in one or more real estate properties which include Income producing properties in the form of a small apartment building, duplexes or even single-family homes that are rented out to tenants.

You would own and operate the piece of real estate’s yourself, and you will receive the rent payment and value changes from those investments. As a real estate investor, you will most likely be purchasing ownership interest and then earning a return on that investment by issuing leasehold interest to tenants who will, in turn, pay you rent.

Multi-Family Residential Property

Multi-family residential property delivers the most stable returns because no matter what the economic cycle, people always need a place to live. The result is that in regular markets, residential occupancy tends to stay reasonably high. Another factor contributing to the stability of residential property is that the loss of a single tenant has a minimal impact on the bottom line, whereas if you lose a tenant in any other type of property, the negative effects can be much more significant.

For most commercial property types, tenant leases are either net or partially net, meaning that most operating expenses can be passed along to tenants. However, residential properties typically do not have this attribute, meaning that the risk of increases in building operating costs is borne by the property owner for the duration of the lease.

Real estate is Tangible! It requires ongoing management. You can visit your investment, speak with your tenants, and show it off to your family and friends. You can see it and touch it. A result of this attribute is that you have a certain degree of physical control over the investment – if something is wrong with it, you can try fixing it.

One of the beneficial features of real estate is that it produces relatively consistent income returns and capital growth. In that sense, real estate has an income-paying bond-like component in that it pays a regular, steady income stream, and it has a stock-like component in that its value has the propensity to fluctuate. And, like all securities that you have a long position in, you would prefer the value to go up more often than it goes down!

The income return from real estate is directly linked to the rent payments received from tenants, minus the costs of operating the property and outgoing mortgage (financing) payments. So, you can understand how important it is to keep your property as full as possible. If you lose too many tenants, you won’t have sufficient rents being paid by the other tenants to cover the building operating costs. Your ability to keep the building full depends on the strength of the leasing market – that is, the supply and demand for space similar to the space you are trying to lease. In weaker markets with an oversupply of vacancies or poor demand, you would have to charge less rent to keep your building fuller than you would in a strong leasing market. And unfortunately, if your rents are lower, your income returns are lower.

In Closing

Buying real estate requires substantial due diligence to ensure that you are getting what you expect after you acquire your investment property.
Whether you are just getting starting in fulfilling your real estate investment dream, a good mentor will guide you in the right direction to invest.

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