TYPES OF REAL ESTATE INVESTMENTS BASIC INFORMATION AND TUTORIALS

Direct Real Estate Investment
The most common type of direct real estate investment is the purchase of a home, which is the largest investment most people ever make. Today, according to the Federal Home Loan Bank, the average cost of a single family house exceeds $115,000.

The purchase of a home is considered an investment because the buyer pays a sum of money either all at once or over a number of years through a mortgage.

For most people, those unable to pay cash for a house, the financial commitment includes a down payment (typically 10 to 20 percent of the purchase price) and specific mortgage payments over a 20- to 30-year period that include reducing the loan’s principal and paying interest on the outstanding balance.

Subsequently, a homeowner hopes to sell the house for its cost plus a gain.

Raw Land
Another direct real estate investment is the purchase of raw land with the intention of selling it in the future at a profit. During the time you own the land, you have negative cash flows caused by mortgage payments, property maintenance, and taxes.

An obvious risk is the possible difficulty of selling it for an uncertain price. Raw land generally has low liquidity compared to most stocks and bonds. An alternative to buying and selling the raw land is the development of the land.

Land Development 
Land development can involve buying raw land, dividing it into individual lots, and building houses on it. Alternatively, buying land and building a shopping mall would also be considered land development.

This is a feasible form of investment but requires a substantial commitment of capital, time, and expertise. Although the risks can be high because of the commitment of time and capital, the rates of return from  successful housing or commercial development can be significant.


Rental Property
Many investors with an interest in real estate investing acquire apartment buildings or houses with low down payments, with the intention of deriving enough income from the rents to pay the expenses of the structure, including the mortgage payments.

For the first few years following the purchase, the investor generally has no reported income from the building because of tax-deductible expenses, including the interest component of the mortgage payment and depreciation on the structure. Subsequently, rental property provides a cash flow and an opportunity to profit from the sale of the property.