Some people are trying to buy their retirement home now, have someone else rent it, thus making the payments on it, and then occupy it in the foreseeable future.  Other investors want to buy a property today, put nothing into the property and sell it immediately for a profit. Sometimes, the goal of an investor is to set up real estate purchases that will yield a consistent income over the years of ownership.  What do you have in mind?

When you invest in real estate, your goal is to put money to work today and make it grow so you have more money in the future.  There are various ways for an investor to earn profits through real estate.  Real Estate Appreciation and Cash Flow Income are two major ways in which to invest and profit from.  Real Estate Appreciation, is when the property becomes more valuable due to a change in the real estate market such as over time the property location becomes more in demand or the due to upgrades in the property, and other factors and market dynamics. Cash Flow Income is when the investor earns money through owning a property in which he/she receives rent from tenants.  In order to invest in Real Estate, you must first identify your tolerance for risk, decide what type of real estate investor you would like to be, identify the type of property to purchase and how you will finance your purchase.

The type of property that you purchase could depend on a variety of factors such as the amount of money available to invest, risk tolerance and the neighborhoods that you are interested in.  Residential Real Estate investments include Single Family, Multi-Family, Condo/Townhouse or Apartment buildings.  Commercial Real Estate investments include office Buildings, Stores, all types of buildings that are rented to businesses, factories, etc.  Within both residential and commercial real estates, there are many sub-types of properties that can be purchased for investment.  With each type, the potential expenses must be calculated along with the potential income.

Real estate investment involves obtaining the necessary funds to purchase the property.  When financing a property, you will often be required to have a letter proving that you have the cash (“proof of funds”) or a letter from a respectable lending institution showing a preapproval for the loan amount that you are seeking.

While Real Estate Investment can be described and analyzed with many terms, there are six crucial terms to understand. They are;

Gross Income

Operating Expenses

Debt Service

Net Income

Invested Capital

Return on Investment