In many cases, investing in real estate is about a lot more than merely finding a place to set down roots. Over the last half a century, more and more people have turned to real estate as a method of collecting a return. The real estate market is certainly ripe with opportunities to make profit; however, one important consideration to make is that real estate involves far more involvement than simply investing in stocks, bonds, or mutual funds. The following information can help you to understand exactly what real estate investments entail.

Rental Properties

The idea of owning a property and renting it out to tenants is an old one. The investor purchases the property and then finds renters to live in the house, apartment, or condo, depending on what type of property it is. These tenants pay rent to the owner, also known as the landlord. The owner is responsible for paying the mortgage, maintenance costs, and taxes associated with the property. The landlord may decide to charge rent that is slightly higher than the total expenses for the house in order to turn a monthly profit; more commonly, though, the landlord will charge approximately the same amount as the total house expenses and wait until the mortgage has been paid. At that point, the rent money collected is mostly profit.

The Pitfalls of Being a Landlord

While this may seem like an ideal investment situation, it has its downfalls. You may find yourself stuck with tenants who don’t pay on time or worse, don’t pay at all. Tenants can also cause lasting damage to the property, which you will have to pay for out-of-pocket if you wish to maintain the property. If you choose the property and the tenants carefully, though, you may be less likely to find yourself in this situation. Choose a property in an area with low vacancy rates and ask all potential tenants to provide references that can vouch for them and you should be fine. Keep in mind though, that there’s no getting around the regular duties you will have as a landlord in order to maintain your investment. You must make yourself available in case there is a problem at the property – you’ll be the one to answer the call when something breaks.

Real Estate Investment Groups

Real estate investment groups are something like mutual funds, except with properties. Perhaps you would like to own a rental property, but you don’t want to have the responsibility of being a landlord.

These types of investments are offered by companies who purchase large blocks of apartments or condos. Investors are asked to contribute money in order to own a portion of the total property. They are then considered partial-owners. Investors are not required to participate in the management of the units, maintenance and upkeep, or advertising efforts when a unit is vacant. Instead, these aspects are handled by the company and paid for through a percentage of the monthly rent. As is the case with mutual funds, one of the most significant pitfalls of this system is the fees and percentages mandated by the company. If you do choose to invest in real estate through an investor’s group, do your research beforehand.