Real Estate Investing Basics

A real estate investment is generally tangible — you buy land or property that you can actually see. Think about how stocks and bonds work. You invest your money in a company you do not physically own. By buying shares, you are in essence lending the company your money and hoping for a profit. With real estate, you own the “company,” so you need to sell “shares” of it to see a profit — by selling or renting the property.

The details of real estate investment can be overwhelming. There's a whole new language to learn: closing costs, resale value, liquidity, and inspections. But if you're willing to overcome your apprehensions, you'll find that real estate can be a wise investment. If you are considering investing in real estate, it's important that you do your research so that your investment will turn into a profitable venture. It's harder to get out of real estate than a stock or bond purchase, so educate yourself and make sure you understand exactly what you're doing.

You must consider inflation when investing in real estate. Believe it or not, a real estate investor can reap profits from inflation alone. Check out this example. An investor has $30,000 worth of equity in a $100,000 property. With a 3 percent inflationary increase in property values, her holdings are now worth $103,000 — a $3,000 increase. That $3,000 increase on her $30,000 investment translates into a 10 percent return — due solely to inflation.