It has often been said that there is no better investment than land. The proof is in the pudding: Real estate investments yield substantial profits, offer attractive tax incentives and enable consumers seeking long-term gain to diversify their investment portfolio, thus reducing its overall volatility. Furthermore, investing in real estate provides an effective buffer against inflation, due to the fact that property values generally increase as real estate developments become more costly. More and more Americans are witnessing the benefits of real estate investing, which take the form of capital gains or a steady, current income. A real estate investor who purchases property at the opportune moment and in the right manner, and who properly maintains it can expect to reap long-term returns and a constant value-appreciation of his investment. A wide variety of investments is available in the real estate market, ranging from condos, apartments, and rental homes to warehouses, shopping malls, commercial buildings and vacant land.
Homeowners and investors have numerous real estate investment options at their disposal, with the two main categories being business and residential. The four major types of income-producing property are industrial, retail, leased residential and rental. Real estate investments can be direct, as in the case of rental properties, second homes, vacation homes or the family home. Benefits to the investor derive from the appreciation of the property he or she purchases directly. Rental properties are usually multi-family complexes, with investors renting out the individual units. Property rentals enable the real estate investor to ensure a consistent and dependable cash flow via rental payments. This is explained by the fact that the occupancy demand for reasonably-priced rentals in good condition is high.
A popular real estate investment involves "flipping" a property, or buying, repairing and reselling real estate for a profit. Real estate investing may also be achieved through investment trusts and partnerships. One of the most lucrative forms of real estate investments is in financial instruments, or more specifically by buying shares in a
real estate investment trust (REIT). A REIT is an entity that purchases, develops, supervises and/or sells different kinds of property or real estate assets such as mortgages secured by real estate, housing developments, office complexes, hotels, apartment buildings, shopping centers, skyscrapers. Individuals contribute capital to a REIT, which in turn invests it in a professionally-administered and diversified real estate portfolio, which includes both real estate-type debt, such as mortgages and income-producing properties. Investors can choose from among three classifications of REITS:
1. Mortgage REITS
These REITS provide loan funds for mortgages to real estate developers and owners or invest in financial instruments or securities that are backed by
mortgages.
2. Equity REITS
The equity REITS are the most prevalent type of REIT, and they directly own, operate and/or invest in real properties, generating income for investors from the period rents they collect.
3. Hybrid REITS
These companies operate both as an equity and a mortgage REIT by combining the investment strategies of both. The investment of a hybrid REIT involves direct ownership of
mortgage loans and real property. Consumers invest in them by buying shares, in the same way they would shares of securities. Through REITS, investors can earn dividend income, flowing from mortgage interest and rental income, as well as capital gain resulting from the profitable sale of property assets. Many REITS are publicly-traded on over-the-counter markets and the leading, national stock exchanges.
Real estate investing may also take the form of a real estate limited partnership (RELP), a joint ownership program in which investors pool their resources and effectuate real estate investments. A RELP purchases real estate such as hotels, shopping malls, apartment buildings, and industrial warehouses and passes the rental proceeds through to its partners. RELPs build new structures and generate gains from the appreciation of undeveloped land or income from existing real estate. When RELPs sell appreciating properties, they pass the profits to their limited partners.
Additionally, consumers may invest in raw land. In this type of real estate investment, individuals buy unimproved or undeveloped land and then lease, sell or build it. Another opportunity available in the real estate market involves purchasing stocks or mutual funds of home developers or real estate management companies. The investment target of real estate mutual funds is restricted to real estate companies.