Making the jump to investing in real estate can be scary, but it can also pay off in a big way. While no investment comes with a guarantee of profit or financial protection, real estate has historically been one of the most lucrative and safe options for investors. It doesn’t usually have a problem keeping up with inflation (thanks to built-in appreciation), and it has significant potential for notable gains.
Unfortunately, jumping into the real estate market can be very confusing for beginners. You may have a lot of questions, including whether or not you should invest your own money in a piece of real estate or talk to bridge loan lenders about short-term loans. To help you feel confident and capable, here is a beginner’s guide getting started as an investor in the highly lucrative real estate market.
Understanding Real Estate Investing
Investing in real estate can seem very broad, so it’s important to break it down to its most basic components. Real estate investing refers to the acquisition of a property or the rights to a property. It can refer to leasing or purchasing real property.
Real estate and real property are two separate things, even though many people refer to them as the same thing. Real estate is a tract of land and anything attached to the land (including buildings). Real property, on the other hand, is the rights, interests and benefits that accompany ownership of real estate. Given this definition, investing in real estate could include everything from owning and renting out residential housing or leasing the mineral rights to a piece of land you have purchased.
Passive vs. Active Real Estate Investing
If you prefer to invest without getting too involved, passive real estate investing may be ideal for you. On the other hand, if you want to be as involved as possible in your investment, active real estate investing may be a better choice.
Passive real estate investing includes purchasing shares of a mutual fund that invests in the real estate market. It doesn’t require you to know much about real estate and won’t take up much of your time, either. For this reason, passive investing is a popular option for beginners.
Active real estate investing is much more involved and requires you to know more about real estate. When you purchase a property, make improvements to it, then flip it for a profit, you’ve engaged in active real estate investing. Many investors also choose to purchase, then rent out properties to others for a profit. Actively investing is a good choice if you have done your research and feel comfortable about your ability to make wise investment decisions.
Once you decide what type of investing you want to do (passive or active), you’ll need to make sure you have the financial ability to invest. You can always throw your own money into the mix, but for many investors this feels too risky. Hard money lenders Los Angeles offer bridge loans that are great short-term solutions when you need to purchase a piece of property quickly. You can also opt for a traditional mortgage loan if it meets your needs better.