Buying real estate can be more than just finding a place to call home. Most people have to do a real estate transaction at some point in their lives, and some find it an intriguing opportunity for capturing and creating value. Real estate has become a common investment vehicle, and it continues to be popular despite a very rocky market correction in 2007-09.
Although the real estate market has plenty of opportunities for making a profit, buying and owning real estate can be a lot more complicated than investing in stocks and bonds. In this article we’ll go beyond buying a home and introduce you to some of the basic real estate investments.

The Power of Leverage in Real Estate

Before we dive into types of real estate investments, it is worth looking at one of the main attractions it holds for investors. Investing in real estate gives you one tool that is not as easily available to stock market investors: leverage. If you want to buy a stock, you have to pay the full value of the stock at the time you place the buy order. Even if you are an individual investor buying on margin, the amount you can borrow is still less in total than what you can easily access for a real estate purchase.
A traditional mortgage generally requires a 20% to 25% down payment. However, depending on where you live, there are many types of mortgages that require as little as 5% down. This means that you can control the whole property and the equity it holds by only paying a fraction of the total value up front. Of course, your mortgage will eventually pay the total value of the house at the time you purchased it (plus a not insignificant amount of interest), but you control the whole asset the minute the papers are signed.

1. So You Want to Be a Landlord


Ideal For: People with DIY and renovation skills and an aptitude for dealing with tenants
What It Takes to Get Started: A healthy amount of capital to ensure access to financing and cover up-front maintenance costs and vacant months
Cons: Rental properties tend to be hands-on investments unless you use a property management company. Rental property owners often must choose between being ready to field a tenant call at any hour and forgoing income (or taking a loss) to have someone else do it for them.
Rental real estate is an investment as old as land ownership. Basically, you buy a property and rent it out to a tenant. The owner is now a landlord, responsible for paying the mortgage, taxes and costs of maintaining the property. Ideally, the landlord charges enough rent to cover all of the aforementioned costs with enough left over to produce a monthly profit right from the start. However, depending on the rental market, a landlord may have to be patient and only charge enough rent to cover expenses or even take a loss to keep a property occupied. Although this can be uncomfortable and requires a capital cushion to absorb periods of loss, landlords tend to invest for the long term. After all, once the mortgage has been paid on a rental property, the majority of the rent becomes profit.
Of course, the monthly income from a property is not the only focus of a landlord. As with all real estate, the property can appreciate over the course of the mortgage, leaving the landlord with a more valuable asset. According to U.S. Census Bureau data, sales prices of new homes – which can be used as a rough indicator for real estate values – consistently increased in value from 1940 to 2006 before dipping during the financial crisis. Sales prices have since resumed their climb, surpassing pre-crisis levels.