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DIRECT AND INDIRECT REAL ESTATE INVESTMENT

KACIEBUSINESS

Owning real property is a great move to create wealth. It is a wise investment to build a solid foundation for you and your family. There are many ways people can own or invest in a property; whether it’s direct or indirect, the option to choose in this sector is wide.

 

The real estate industry is among the key drivers of economic growth across the world. To build in this sector, it’s best to educate yourself to see the variety of opportunities in the market. And this will also lower the chances of you making a bad investment move.


WHAT IS REAL ESTATE?

Real estate is a property that consists of land, buildings, fixtures, roads, and natural resources such as crops, minerals, animals, and water. It is a form of real property. To show that you are entitled to real property, a person is normally given a title to prove ownership, the same as when given a title for the ownership of a vehicle.  



4 TYPES OF REAL ESTATE

There are four types of real estate. Let us take a look at them below. 

 
RESIDENTIAL

Residential real estate is the most common type of asset class that most people are familiar with. This type of housing leans more towards individuals and families. It includes single-family homes, townhouses, duplexes, multifamily homes, cooperatives, triple-deckers, condominiums, vacation homes, and other residence types.

 

LAND  

This type of real estate is the foundation of many other real properties. Land includes vacant lands, undeveloped property, and farms or agricultural property. Developers normally acquire land and combine it with other properties (called assembly) and rezone it to increase the density and increase the value of the property.

 

COMMERCIAL

Commercial real estate is any property that is used exclusively for business, such as shopping centers or malls, office buildings, restaurants, theaters, hotels, grocery stores, hospitals, individual stores, parking facilities, and apartment buildings because it’s a business that is used to produce income.

 

INDUSTRIAL 

Industrial real estate refers to land and buildings used for manufacturing, production, distribution, storage, construction, logistics, warehousing, and research and development.



HOW THE REAL ESTATE INDUSTRY WORKS

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As mentioned above, the real estate industry is a driving force of the global economy. There are many opportunities to earn and build in this sector. Let us explore several different areas in the industry to learn how it works. 

 

1. SALES & MARKETING

This type of industry works with developers to sell and promote building units or new construction buildings they create. The sales and marketing firms earn a commission from the development companies after work is executed and completed with satisfaction. 

 

2. DEVELOPMENT 

Real estate development companies are the contractors of new building units. They purchase land, construct, and renovate beautiful residential and commercial properties. Developers earn a profit by adding value to land or building when they sell or lease to interested parties. Development firms bring great value to the industry, they are the primary builders of the real estate market. 

 

3. BROKERAGE

A real estate brokerage is a firm that usually worked under a licensed to represent both buyers and sellers of real property. They employed real estate agents (realtors) to act on their behalf to transact business between parties of a property. Brokers and agents negotiate and manage the documentation required for closing real estate transactions. 

 

4.  PROPERTY MANAGEMENT 

Property management firms help to operate, control, maintain, and oversee the real property. Property manager’s jobs include managing tenants, fixing damages to a property, collecting rent, and finding tenants. They are responsible for the overall control of the real estate. The firms are paid by the property owners of an agreed percentage charge of the total rent.  

 

5. LENDER 

Lenders are the big bosses in the market; they virtually finance most industry properties and developments. Lenders can be banks, private lenders, credit unions, and government institutions. 

 

6.  PROFESSIONAL SERVICES 

Apart from the professionals above that earn highly in the market, there are other professionals who help with the function of the industry, such as lawyers, appraisers, surveyors, general contractors, interior designers, stagers, construction workers, and several other professions. 

REAL ESTATE INVESTMENT

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Purchasing and owning real property is an investment that can bring great value in the future. Real estate investing’s sole purpose is to generate income through buying, managing, and selling a property. It is a form of financial security.  Most people who invest in properties purchase with leverage by making a down payment, then further paying off the lender with interest over time. 

 

Real estate investing is a lucrative way of gaining wealth over time through a continuous investing strategy. There are many ways to invest in real estate, whether through flipping a property, become a landlord, and capital appreciation of property value. 

 

You can also invest in real estate without buying real property. You can indirectly buy stocks of homebuilders. The market is more liquid, and their stock prices rise and fall with the housing market. Another way is with Real Estate Investment Trusts, called REITs. These are investments in commercial real estate. There are two types of real investment; 

 

WHAT IS DIRECT INVESTING?

This investing involves buying a stake in a specific real property and having a legal entitlement to the asset purchase. In other words, you hold a legal title of property acquired; whether the asset class is a home, vacation property, commercial property, or land, it shows ownership. 

 

WHAT IS INDIRECT INVESTING?

This is the opposite of direct investing. Indirect investing involves buying shares in a fund or a publicly or privately held company. In this case, the company would hold the legal title of the property on behalf of its investors or the group of investors. An example of this type of investment is a Real Estate Investment Trust (REIT). A real estate investment trust is a company that owns, operates, or finance income-producing real estate. They allow individual investors to buy shares into their commercial real estate portfolios. This is a great way for individuals to hold real estate without physically owning an entitled property. 



SIMPLE WAYS TO INVEST IN REAL ESTATE

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Here are five key ways investors can make money on real estate.

 

1. HOUSE FLIPPING

House flipping is a common direct real estate investment strategy used to gain short-term profits. This is the process of buying an undervalued property, renovating it to add value, and then quickly reselling it for profit.  This type of investing, however, requires you to have capital, experience, and knowledge of the real estate market to execute effectively. It can be a full-time job because it requires you to be on-site to oversee work done daily. 

 

However, a flipper can lose money if the property doesn’t sell on time because they typically don’t keep enough uncommitted cash on hand to pay the mortgage on a long-term basis.  

 

2. RENTAL PROPERTIES 

Investing in a rental property is a great opportunity for individuals to create a cash flow to build wealth. This type of direct investing will require you to manage tenants and oversee the maintenance of the property. You can gain profit in this strategy by collecting rent and through property appreciation. However, it can be difficult to manage tenants, and they can also damage your property. So you must have capital set aside in case of any damage.

 

3. REAL ESTATE INVESTMENT TRUSTS (REITs)

A real estate investment trust (REIT) is an indirect investing strategy created for an investor who wants exposure to real estate without the need to invest directly. A REIT is like any other stock that you purchase and sell on a major exchange. 

 

A real estate investment trust is created when a corporation(or trust) uses investor capital to buy and operate commercial properties such as houses, office buildings, shopping malls, apartments, hotels, self-storage facilities, warehouses, and resorts, to mortgage REITs, which deal in investment and ownership of property mortgages. However, there can be a mix of Equity and Mortgage REITs, better known as Hybrid REITs. This type of trust mixes investing and owning both properties and mortgages.

 

For a corporation to maintain its REIT status, 90% of its taxable profit in the form of dividends must be paid to its investors annually. This allows the corporation to avoid paying income tax, whereas a regular company would be taxed on its profits. So unlike regular dividend-paying stocks, REITs are a solid investment for stock market investors who desire firm potential income.  

 

This type of investment is professionally managed, and it provides investors ownership in a diversified portfolio of real estate properties. Also, it’s a liquid market, meaning you can easily buy and sell REITs on an exchange.  You don’t need a realtor or a title to complete the transaction. REITs are a more formalized version of Real Estate Investment Groups (REIGs).

 

Finally, when looking for REITs, you can go to Nareits, which is the worldwide representative voice for REITs and listed real estate companies with an interest in U.S. real estate and capital markets. 

 

4. REAL ESTATE INVESTMENT GROUPS (REIGs)

A real estate investment group is a company that builds a set of apartment blocks, or condos, then allows investors to purchase them through the company, thereby joining the group. The investment group, therefore, manages all the units, handling maintenance, advertises vacancies, and interviews tenants. In compensation, the group collects a monthly percentage of the total rent collected.  This type of investment is ideal for investors who want to invest in rental properties but don’t want the trouble of maintaining and managing the property.

 

5. ONLINE REAL ESTATE PLATFORMS 

Real estate investing platforms is a relatively new way to invest in commercial and residential properties. The investment is done on real estate platforms, also known as real estate crowdfunding sites. The platform pair developers and other real estate professionals with individual investors and companies that want exposure to the real estate market without the headache of owning financing and managing properties. 

 

Real estate crowdfunding raises capital for real estate investments. When developers or real estate professionals find investment opportunities, they may not want to fund the entire investment themselves. Hence, they turn to crowdfund to let individual investors help finance the project. The process enables investors to invest in real estate privately without having to own, finance, or manage properties. This type of investment is risky but potentially provides higher returns than publicly-traded REITs. 

 

Crowdfunding sites are a great way for investors to diversify their real estate portfolios with low account minimums and low fee structures. It’s important to note that most real estate crowdfunding platforms are open only to accredited investors.  This means they are only open to investors (individuals and companies) who have high-net-worth and experience to trade privacy and riskier investments. 

 

Here are 3 top real estate crowdfunding sites that you can visit that offer investment options for both accredited and non-accredited investors. 

 

 

INVESTMENT RISK

Investing in real estate is a great opportunity to diversify your portfolio and build wealth.  However, with any investment option, there will always be risk involved, and it is for you to decide whether you can afford to take on a high or low investing risk. You must conduct proper research on any real estate group or company before investing your hard-earned money. Invest wisely and put an amount that you can afford to lose.

TOP 5 INTERNATIONAL INVESTMENT PROPERTIES
INVEST IN THE INTERNATIONAL REAL ESTATE MARKET
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TOP 2 JAMAICAN INVESTMENT PROPERTIES
INVEST IN THE JAMAICA'S REAL ESTATE MARKET
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Kacie Johnson is a licensed Jamaican Real Estate Agent for 8 years and a certified Paralegal for over 14 years.

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4 Responses

  1. Right now I don’t have the financial muscle to invest directly in real estate. But that being said I do have the drive to learn as much as I can. And I certainly woul like to start today investing in an indirect way. I am glad we can learn all these things online. I will bookmark your site to keep up with the things you post.

  2. Hey there, I have to say that I absolutely LOVED reading this article. I’m really into learning about business and real estate in particular. Your article has educated me on other types of real estate investments like land and commercial buildings. I’ve met some people who have done real estate as a business and they enjoy the consistent income and flexibility that it offers them. I’m hoping to invest in a real estate property when I graduate college. Thank you so so much for this awesome post. I bookmarked your site and will come back to it when I need more valuable information on real estate. 

    1. Hey Gabriel, I’m absolutely grateful for your comment. I’m happy that this post has enhanced your knowledge somewhat in this business. Thank you and all the best in college :). 

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