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Real estate investing

Real estate investing involves the purchase of real estate for profit. Profits are accumulated slowly by renting out properties in a cashflow method, or are generally improved and resold for a capital gain. In addition, real estate investors may wholesale properties as a means to make profits.

Advantages

There are many gurus out there that contend that real estate is a panacea where you cannot lose money.[citation needed] Although this is false, there are a number of advantages to investing in real estate. The biggest factor in marketability of an investment is supply and demand.

The first big advantage is that it is an extremely expensive product. Each sale you make generates more profit potential for this reason.

Leverage, or the ability to borrow based on the value of the property, is probably the second greatest advantage. It is much easier to finance real estate than any other product. While investing in most assets requires the purchaser to have the full purchase price available for the asset, in real estate investing, one only needs to have a fraction of the purchase price available (like 5%, 10% or 20%) as a down payment. Therefore, real estate, although incredibly expensive, is still easier to buy than say, a piece of industrial equipment of the same value.

Local advantage is rarely discussed but it stands to reason that you know your neighborhood better than a real estate investing expert would if they were in another part of the world. This creates an advantage the beginner can exploit in his market.

The bulk of the world's assets are in real estate.

One way a beginner can get started in real estate investing without taking on any personal risk is to 'bird dog', or hunt for good deals, for another more experienced investor. This allows the beginner to learn to find and recognize value

Disadvantages

Real estate is an illiquid investment that needs maintenance and taxes to be paid. A balanced investment portfolio has some liquid assets that can be quickly converted to cash to sustain the real estate when its returns are not sufficient to pay its recurring costs.

During a real estate boom, speculators can be prone to make purchases without precalculating the costs involved in the purchase and for the ongoing costs of a property. The real estate can then sometimes work against them instead of for them, realizing a loss at resale.

There is no guarantee that values will maintain themselves as society changes; megatrends can cause large scale changes. An example is the period from 1815 to 1914 in the U.K., during which real estate values did not increase although the society as a whole made massive economic progress.