The question, what is real estate investing, must be answered much the way you would peel an onion—one layer at a time.

Let’s start with a definition and then move into a few concepts.

Real estate has been defined as land (or immovable property) along with anything permanently affixed to the land, such as buildings.

Investment is the act of using money to purchase property for the sole purpose of holding or leasing for income.

Thus, we have it. Real estate investment involves acquisition (unlike other economic or financial investment, real estate is purchased), holding, and sale of rights in real property with the expectation of using cash outflows for the potential of future cash inflows, and hence, generating a favorable rate of return on that investment.

Simply put, real estate investments are a source of wealth and investing in real estate is the act of purchasing real estate with the goal of making a profit and acquiring wealth.

In contrast to stock investments, which usually require more equity from the investor, it is possible to leverage a real estate investment heavily. In other words, with a real estate investment, you can use other people’s money to magnify your rate of return and control a much larger investment than would be possible otherwise.

Aside from leverage, however, other benefits arise from real estate investment. Yields on real estate investments include annual after-tax cash flows, equity buildup through appreciation of the asset, and cash flow after tax upon sale.

There are also non-monetary returns associated with real estate investing. Pride of ownership, for example, the security that you control ownership, and portfolio diversification.

Of course, real estate investing is not a bed of roses. Real estate investment does require capital, there are risks, and rental property can be management-intensive.

On the other hand, the car you drive required capital, driving it involves risk, and it certainly requires management. The difference is that a car is not a source of wealth.

If you want to become a real estate investor or just getting started in real estate investing, here are three things you should do:

1. Develop a real estate investment goal. What do you want to achieve, and by when do you want to achieve it? What rate of return do you expect to want to receive on moneys you pull out of your home or bank account to purchase an investment property given the risk?
2. Learn what returns you should look for, and how to compute them. You cannot succeed in a musical career unless you can read music. Our real estate investment software program will teach you the formulas.
3. Create a relationship with a real estate professional that knows the local real estate market and understands rental property. It will not advance your investment objectives to spend time with the “agent of the year” unless that person knows about investment property and is adequately prepared to help you correctly procure it.

Finally, investing in real estate is more than experienced “gurus” out there who are repackaging the exact same material as the next guru and reselling it without first being successful in real estate investing themselves.

Successful real estate investing is not about uncovering a “trade secret.”

The “sizzle” in the business of real estate investing is about owning a piece of ground that, if unduly researched and purchased sensibly by impartial numbers, with careful management, will likely be more valuable tomorrow than it is today.

That is, after all, the nature of real estate.

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