October 23, 2016

Real Estate Terms Every Investor Should Know

Posted in Integrale Advisors LLC, Keith Knutsson, Real Estate tagged , , , , , , , at 11:38 pm by Keith Knutsson

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If you are interested in investing in real estate, there are several-key terms that you should have a complete knowledge of. These are necessary terms if you want to understand the ins and outs of the property you are looking at to purchase. Both real estate and investing are industries that come with their own specialized jargon. In order to make lucrative purchases, it is crucial to understand the basics related to the industry.

Keith Knutsson explains the key terms to help you make a successful transaction. This is a basic list that will help you get started and understand the bigger picture:

Real Estate

There are a number of people who do not fully understand the definition of “real estate.” Real estate is land, any building on that land, or any of the naturally occurring resources of that land, including water, wildlife, minerals, and crops.

Real estate generally falls into three categories: commercial (office buildings, strip malls, retail space), residential (living spaces), and industrial (large-scale business, farms, manufacturing).

Asset

An asset is something you own that has value, which you expect to see a future profit from. For example, when you purchase a rental property, that property provides continual cash flow from the tenants. You may increase the value of your property by adding additional or newer equipment or accommodations within the property.

Liquidity

This refers to how easily an asset can be turned into cash, with very little or no effect on its value. However, a home can be difficult to sell for a quick profit. Often the price a buyer is willing to pay is lower than the value on paper. Knowing the liquidity of property investment will give you the ability to take advantage of lucrative opportunities as they arise.

Income Property

When you rent or lease the property that you’ve purchased, it brings in income, which is income property. These can be residential, commercial, or industrial. They can be purchased or independently developed by an investor. Investors may choose to purchase income property for the cash flow that comes from renters, then sell the property when it appreciates appropriately in value.

Flipping

This requires a serious investment strategy. Flipping is when a property is purchased with the intention of renovating it and selling it quickly for a profit. This type of property can also be “flipped” without renovations or improvements when marketing conditions are favorable.

Real Estate Investment Trust (REIT)

Investing in commercial real estate is no longer only for the wealthy. In 1960 the U.S. Congress established REITs, which allows commercial real estate to be available to all investors. A REIT is a corporation that owns a vast amount of rental properties. For example, hotels, shopping malls, and storage units. Their value is based on the amount of money brought in from tenant rent and dividends based on profit. When you invest in REITs you do not directly own the property, but share in the corporation.

Turnkey Property

This type of property is purchased to experience immediate cash flow. They typically require no repairs, renovations, or upgrades, and will usually have a renter in place. Turnkey properties are generally handled by a management company, not the investor, which includes all landlord duties.

Exit Strategy

Once an investor feels that the value of their investment has increased, whether from renovations on the property, or seeing a value in selling stock or commodity, an exit strategy will help an investor sell according to the market value, in order to receive the highest-overall profit.

With these helpful terms, described by Keith Knutsson, you now have a better understanding of how the world of real estate investment works. If you are looking to invest and are unsure about the opportunity you are looking into, contact our office today and we’ll be happy to share our industry expertise.

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