The stability of the real estate markets is desired by many investors who wish to invest in a physical and real asset. It’s a simple market whose business model doesn’t vary much, from the buying and selling to the renting to tenants, different from stocks which represent a multitude of business models. Of course every location differs from another, but the essence of real estate investing still is the same, and it has it’s advantages and disadvantages when compared to other investments.

As a big disadvantage, the real estate market is very iliquid, which means that it is slow to make transactions, due to various factors: due diligence, risk and size of investment. As of risk, it’s mainly the risk from the amounts involved which are usually in the hundreds of thousands, making it a very rational decision to make, but also the risk of price drop, risk of credit failure by lenders, and others. The due diligence is what makes it more slow, because there are many legal aspects that need to be verified just as the effective owners of the property, mortgages that may be in place, dealing with money lenders, negotiating, and many other aspects that are important for a successfull transaction.

As advantages, real estate investing provides a way to wealth very different from stock investing. It’s a more steady way to grow and has four forms of wealth growth: property valorization, rent cash flow, debt amortization and fiscal deductions. Although the two first are a little obvious, the last two are not. When referring to debt amortization, we mean that as debt is being paid, your equity (the difference between the value of the property and debt) increases, so your net worth grows. Also, fiscal deductions, or tax benefits, allow a reduction on the tax burden as incentives.

In a certain way, real estate investing is running a business, because the models of business already exist: you can either buy your products (properties) to resell or you can buy your product, reshape it or fix it and resell it, or just have it produce other types of income (like rent in properties). It requires your administration, your decisions, your knowledge and know-how, or you can just let other people deal with it but in the end the entire responsability is yours; in contrast with this, you can invest in real estate just as informaly as you’d invest in the stock market: through REITs or other types of investment funds, or even investing in real estate companies in the stock market (for example, American Realty Investors, NYSE:ARL).

Buy and Sell

Wholeseller

Wholeselling means that the investor buys properties in bulk, requiring more capital, aiming to take a profit from their resell to retail investors who can fix or customize the properties to sell it to the final owner. This form os investing has advantages, as being a simple form of gaining a profit, but the great disadvantage of the high capital demand to invest.

Fix and Flip

One of the most used strategies, the Flix and Flip represents the investment on properties that can be updated and sold for a profit, knowing that by customizing and fixing the problems that the properties presents make it’s value grow. The customizations ca be superficial, just like painting, or structural like restoring or substituing a roof.

Buy and Sell

The simplest form of the three, this one is as simple as buying a property and as soon as possible reselling it for a profit, without any repairs or customizations or with very few ones. In this strategy, the buying and selling price are very sensitive because the profit will be affect by the two, as the investor will not make changes or not big at all.

Renting

Although it can be connected with any of the above strategies, renting can also be a focus in real estate investment, as a way to gain passive income while the property value changes. Renting provides a safe and simple income source, by contracting with tenants their use of the property by paying for it and following some principles. It can be divided into long-term renting, like habitacional renting, or short-term renting, as AirBnBs.

As you can see, there are quite a few models for real estate investing but it all comes down to what you know you can do and what you manage to risk and involve yourself with. These models all exist in every market and they’re intertwined, so there benefits for the market as a whole in having all different operators. Real estate involves a lot of studying and planning but the best to do it is to start, even by starting small and building up with all the erros that one might, and will, commit, but to learn from those and be better the next time, better than himself, always.