How Does A Real Estate Investment Work?

The real estate business is one of the highest-earning businesses in the world and people have churned out a handsome amount of money from this highly paid business or profession. This article will give you all the information you need to know about how does real estate works? The processes, parties, legalities and other essentials involved in the chain. This article will also explain different terms like real estate investment banking, agents’ real estate salary, or does a real estate investment works actually? But before we jump on to that, let's have a brief overview of the basics of real estate.

Real estate is basically a property that includes buildings, natural resources, agricultural lands with legal rights held by the owner. Real estate is categorized into 4 different categories according to their nature. They are:

- Residential properties, which include homes, farmhouses, villas, residential apartments, mobile houses, or rentals for vacations, etc. they are used for domestic purposes mostly.

- Commercial properties, which include offices, shops, stores, restaurants, hotels, etc. They are used for commercial purposes.

- Industrial properties, which include factories, researched centers, warehouses, production units, etc. These structures are basically used for manufacturing or storage purposes. 

- Land properties, includes agricultural land, farms, vacant plots, ranches, etc. 

How does real estate investment work?

Real estate investing works best when it is implemented after devising a proper strategy. But, before jumping to the fact that how do you want real estate investment work for you, you need to determine what kind of output you are looking for.  Are you seeking some fast or liquid cash? Or you are thinking about building a platform an earning “wealth”? or both? After this step, you need to formulate a short term or a long term plan accordingly or you can have a mixture of both.

How does real estate investment work (quick cash): If you are looking to earn some fast or liquid money, then you need to devise a real estate investing strategy for a short term. Short term real estate investing strategy may include quick turning or flipping a property. Quick turning is basically buying a property and then selling it right away. Now, the matter of interest here is how can you earn profit by purchasing a property and selling it quickly? For this, you have to be smart and active. All you need to find is a motivated buyer who is willing to sell a property at a lower price as compared to the market. Then, you need to find the right buyer for the property. If you are good enough then you can sell that property on market price or even higher if you are good at finding the" right buyer". The property may or may not need improvements but if you can spend some money on improvements then it will definitely bear fruits and profit margin may increase significantly. Quick turn strategy can get you 2000$ to 20000$ depending on the size of the deal. 

Now, quick turning is further categorized into 2 categories. That is wholesale quick turn and retail quick turn. Wholesale quick turning deals in finding a property that costs lower than the market value and then selling it fast at a wholesale price (below retail or market price). This practice is based on earning profit and giving someone else a chance to earn profit as well. If you are good at doing that, you can earn a handsome amount of money with this strategy. However, wholesale quick turning often offers a "little" money deals, that is, the profit margins are not very high. But, if you are planning to do flipping houses then this might help you as a financial backup. 

Let’s say, you found a right and motivated seller who is agreed to sell his property for $200K and you found another buyer who is willing to pay $220K for that property. You buy that property for $220K and sell it with a profit margin of $20k. There is another option for that too. You close a deal with the seller and then you find the right buyer and close the deal with that buyer too. So, in this case, your buyer will pay the amount and you can pay the seller. Which means you don't have to invest anything at all and you will be charging a fee or commission for your services. But obviously, you have to be smart for that.

Retail quick turn: For retailing, you need to buy a property whose owner is willing to sell it way below the market price. Again, you need to find the right seller for that. Mostly, people with outdated or out fashioned properties are willing to sell their properties at lower prices because they don't have enough resources for renovation or improvement. You buy the property and sell it at a higher price after some necessary improvements. In a retail quick turn, you are targeting the end consumer as a buyer. That is someone who is willing to buy that property for personal use. If you sell it to another investor then profit margin will decrease because your buyer will keep his profit margin too. So retail quick turn basically targets the "end consumers".

How does real estate investment works (to build wealth): short term real estate investing strategies can help you earn minor or fewer profits because this way,  you can only earn commissions or a "real estate salary". However, if you are looking to build something "big" then you need to work on long term real estate investing strategies. Talking about long term strategies, renting a property comes at the top of the list. Just buy a property and rent it out. This has multiple advantages. One, you will get monthly rent (income). Second, you will be owning the property and have its value appreciated according to the market and if you decide to sell it in the future, you can sell at higher or market prices. Either way, you are in profits. 

Even if you cannot afford to buy a property due to the lack of funds, you can buy it on installments with the help of a mortgage. Rent out that mortgaged property, get the rent and pay your installments. With this, you don't have to pay anything from your "pocket". At the end of the day, you will be the owner of the property and you can earn money by renting it or selling it.

You can also offer a property for lease and earn the profit. In real estate, leasing is associated with renting a property for 6 to 12 months with an option to buy that property after that period. As an owner, you can get rentals for 12 months and then sell that property at appreciated or market price.

One other method to earn money through real estate is you can connect the owners who want to rent out their properties to those who are willing to renting properties. People are earning a reasonable amount of income by connecting these dots. Moreover, this does not need any kind of investment. All you need is a smart brain.

Let’s talk about real estate investment banking. With advancement and modernization, the real estate business has also adapted new modes of operations. Real estate investment banking is basically a practice in which these banking firms connect those who are searching for money or capital for real estate investment with those parties who provide that capital. In this process, real estate investment banks do not provide capital or loans but they unite two parties who are willing to borrow or lend. Of course the banker or bank charges commission or profit share and in return, they provide different services like risk assessment, profit or cash flows potential, importance or scope of the undertaking. Not only this, these banking firms provide their services in mergers, acquisitions, and joint ventures. The bank works as an advisory body and they run the market research.  If we summarize this thing in a few words, real estate investment banking is basically the mediation provided by the banks.

One of the most debated topics in real estate business is "real estate salary of agents” how much does an agent or broker earn on average through this business. Real estate agents charge a commission for every sale they make. So the greater the number of sales and contract value, the greater the amount of commission it will be. Mostly that percentage is 5-6 percent of the sale price. The amount is then split between the agent of buyer and listing broker (if both are involved). If you are smart enough, then you can play both roles and make your pocket healthier.

Real estate is a very vast and profiting field and some people are still confused that does real estate investment really work? Or it doesn’t? It definitely does. If this was not the case, then people would not have earned millions from the real estate business. All you need to do is set your goals, manage your resources, analyze the market trends and formulate a strong and sound plan if you want to pursue a career in the real estate business.