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Back to Basics: Understanding Real Estate

Real Estate Investment Basics

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last update Tuesday, August 25, 2020
  

 



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The term real estate means physical property which applies for the property, land, buildings, etc. Real estate also refers to producing, selling, and buying real estate. It is a critical driver of economic growth to a country. Understanding real estate requires understanding its roles. The roles are as follows:

  1. Construction of new buildings includes both residential, commercial, and industrial buildings. In 2018, real estate construction contributed trillions to the U.S’s economic output. Because of the construction of new buildings, the nation earned a whopping 8.9% component of GDP.
  2. The new home building includes the construction of family homes, townhouses, and condos. The National Association of Home Builders provides monthly data on home and average prices. 
  3. Real Estate agents assist home and business owners along with investors to buy and sell properties. The industry is divided up into specialists that focus on each type. Real estate agents who want to increase their professionalism become Realtors. The National Association of Realtors provides monthly reports on the number of homes resold and their average cost.
  4. Sellers’ agents help by finding buyers through either the professional contacts or the Multiple Listing Service. They can help you spice up your property with attractive prices to entice buyers at a higher price.
  5. Buyers’ agents then find a property that meets your criteria. They compare prices and guide you to affordable areas. The agents also negotiate for you and help you with the legalities of the process. 

Types of Real Estate

There are four types of real estate, Residential real estate, Industrial real estate, Commercial real estate, and Land.

  • Residential real estate: It includes both new construction and resale homes. Some of the examples of such homes are single-family homes, condominiums, duplexes, townhouses, etc. 
  • Industrial real estate: It includes manufacturing buildings and property like warehouses and go-downs. The buildings can be used for research, storage, distribution of goods, etc. The zoning, construction, and sales matters on the classification.
  • Commercial real estate: It includes shopping malls, hotels, offices, medical and educational buildings. Apartment buildings are often considered as commercial because they are owned to produce income.
  • Land: It includes lands such as farms, ranches, and vacant lands. The subcategories within vacant land include undeveloped, early developed, or reuse.

Real Estate Investing

People who purchase or sell a home fall into the real estate investing category. While investing in real estate, considering the buying and selling value, the mortgage payment should be your concern. If you want to buy and sell homes as a business consider “flipping” a house. Flipping means after you buy a house for selling purposes, you recondition it by doing necessary repairs before finally selling it. Some people choose platforms like Airbnb or real estate investing apps to rent their homes for a particular period of time. Keep in mind that having a good idea about the business cycle is important or else you might fall into traps where you end up losing your money.

Real estate investing doesn’t only require buying a home, you can invest even without purchasing one. You can buy stocks of homebuilders or by Real Estate Investment Trusts (REIT). These are commercial investments in real estate that gradually gives you the benefit.

Statistics and Real Estate Markets

There are 3 important things to look for:

  1. Inventory: The total of homes that are available for sale.
  2. Months of supply: It includes a calculation of months taken to sold all the houses in the inventory. NAHB reports both the inventory and months of supply every month.
  3. Sales Prices: The Census Bureau reports the medium and the average new home sales prices.

Statistics about new home construction are important economic indicators. They give you a demonstration of the future of the housing markets. For example, If home starts are steady but the housing starts to decline, it would take a toll on home sales. The shortage of workers, concrete, etc could flare up the costs and sales prices. This will decrease the demand for new homes. Similarly, if mortgages are declining the builder will end up with an unsold home for sale, this means the demand will rise but homeowners can’t get any mortgages. Rising home starts might seem like a good idea but it could be a bad sign as well because declining home closings mean the housing market is weak.



       
 

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