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If investing in real estate is unfamiliar to you it doesn’t mean it has to be avoided. When approached correctly, real estate can be a lucrative and reliable way to generate substantial returns. Real estate can create a consistent income stream while supplementing your portfolio with unique benefits. Benefits like appreciation potential, portfolio diversification, and tax advantages.


Besides looking at the positives of real estate investing, real estate can seem intimidating without an obvious starting point. This doesn’t have to be the case for you. Below is an overview of the fundamentals of real estate investing.


What is Real Estate Investing?


Real estate investing is the purchase, ownership, lease, or sale of land and any structure on it for the purpose of earning money. There are three categories of real estate: residential, commercial, and industrial.


Residential real estate: Residential real estate consists of single family homes, multi-family homes, townhomes, condominiums, and multi-family homes that people use as a living space, not a working space. Commercial property is homes that are larger than four units.  A few examples include freestanding homes, townhomes, and condominiums that occupants can own.


Commercial real estate: Property that is used for the purpose of business. Commercial real estate is classified as an office, retail, land or multi-family.


Industrial real estate: These are properties that serve for an industrial business purpose, as the same suggests. Examples include storage warehouses, factories, and power plants.


There are three main ways to make money from real estate investments: interest from loans, appreciation, and rent.


Interest from Loans (or, in relation to real estate “debt”): A real estate loan is an arrangement where investors lend money to a real estate developer and earn money from interest payments. This debt provides regular cash flow for an investor. There are several types of debt depending on the number of lenders. The different types of debt include senior debt, junior debt, and mezzanine debt.

Appreciation: Just like ownership of any equity, real estate ownership gives an investor the ability to earn money from the sale of that equity. The increase in the value of a property over time or appreciation represents the potential profit available to an investor when that property is sold.


Rent: An investor who holds equity ownership of a property can earn income by leasing that property. Rental income can provide a regular stream just as income generated from a debt investment.