Real estate investing is the purchase of real estate. To fully understand this definition, we must first define real estate. Real estate is any piece of land and property attached to that land. Anything natural or man-made that are a part of this land, including trees, buildings, or fences, are considered real estate.

• People use the words land, real estate, and real property interchangeably. However, there are slight differences between each term.
• Land is any natural surface and airspace — anything that you could attribute to being a part of “Mother Earth.”
• Real estate is this land plus any permanent man-made additions, such as a home.
• Real property is the set of incentives and benefits that come from owning real estate.

Investing in real estate is the act of purchasing a piece of land plus any man-made additions made to that land.

There are several categories of real estate investing.

• Residential real estate
• Commercial real estate
• Industrial real estate

Real estate investing can be intimidating to those not familiar with the industry. It can take several months or properties before investors become fully comfortable in real estate.

Investing in real estate is a tried-and-true method of making money. History has shown that property values increase over time. This is referred to as “increase in value appreciation”. One of the major points to base your investment decision is the property location.

Some real estate investors will rely solely on value appreciation. For example, they live in the property, or they invested in a vacation home.  Many real estate investors like to grow their wealth by generating rental income.

Renting out the property you own, allows that property appreciating over time, while earning monthly income. Some landlords work with property managers which allows them to label the income as passive income.

Ideally, the rent would be paying the investors mortgage as well as providing profit. This will turn to pure profit once the mortgage is paid off. Investors have to factor in repairs and maintenance into their budget.

BENEFITS OF REAL ESTATE INVESTING

CASH FLOW

• Properties earn rental income from tenants.
• The more stabilized the property or higher its occupancy, the greater the chance steady and predictable cashflow

INFLATION PROTECTION

• Over the long-term, real estate may provide a hedge against inflation
• Property values and rental income typically increase during periods of inflation.

DIVERSIFICATION

• Real estate can provide diversification within a portfolio of traditional investments such as stocks and bonds
• While the real estate market can fluctuate, it has been demonstrated over time to be less volatile than some other asset classes.
• The potential for this stability can be a distinct advantage to investors.

Historically, real estate investments have offered a path to wealth through property appreciation and generation of regular income.

PASSIVE INCOME TO YOUR PORTFOLIO

• Passive income is periodic disbursements without significant effort beyond an initial investment.
• Real estate has traditionally been considered a passive investment strategy,
• Actively owning rental properties requires considerable effort, including overseeing the purchase, performing inspections, finding tenants
• Ongoing property management and maintenance.

While investors should always perform their own due diligence before investing, each deal that you get involved with Asset Tree platform has undergone the platform’s due diligence process including traveling to the property to confirm its location, building characteristics and condition, thus offering a truly passive investing experience for investors.

Real Estate Terms

Capitalization Rate

Capitalization rate, or “cap rate” for short, is a formula used to calculate the value of an investment deal. Expressed as a percentage, the cap rate is always calculated using the current market value of a property.

Cash Flow

Cash flow is a concept used in business and personal finance that describes the inflows and outflows of cash. For example, a rental property investor will often calculate the monthly cash flow, which is all the rental revenue generated by the property, minus all expenses. Investors will search for properties that will provide a positive cash flow every month.

Net Operating Income (NOI)

Net operating income, or NOI, goes hand-in-hand with the cash flow calculation. Once you have subtracted all of the monthly expenses from the monthly rental revenue, the leftover dollar amount is the net operating income. In plain language, this is the ‘profit’ portion of the operation.

Real Estate Owned (REO)

Real estate owned, or REO, properties have been reclaimed and owned by lenders, typically banks. After a property has been foreclosed upon, a lender will usually remove liens and expenses from a property so that it can be sold faster. REO properties provide a great option for investors looking to purchase property for below market value.

Return On Investment (ROI)

The most common way to measure an investment deal’s relative success is the return on investment (ROI). ROI is determined by taking the ratio between the net profit and how much capital was used for the investment. The higher the ratio, the better the gains.

Real Estate Investment Trusts (REITs)

Real estate investment trusts (REITs) are firms that typically own and operate portfolios of income-producing real estate properties. Some REITs will specialize in specific niches, such as residential or commercial. Investors who prefer to take a more passive role in real estate investing might find REITs to be great options.