It’s funny how the economy seems to always be going up and down, right? Well, not really. In fact, it seems that it’s almost always going down, with just a few little blips of improvement along the way. When I was growing up my dad always gave me this bit of advice about investing: if you can buy real estate of any kind, do it! He would further add his belief that property always increased in value. But how does real estate investing work, and is that true? Let’s take a look at some basics.
The first thing to understand about real estate investing is that there is by definition a fixed amount of land available. After all, the earth is only so big. For that reason, a lot of people believe that real estate will always increase in value, and while there is some logic to that, real estate can and does decrease in value.
As to how does real estate investing work, there are a lot of similarities with any other type of investing. For example, you will do best when you buy at a low price and sell at a much higher price; generally speaking. The trick is to know where you are on the curve of the pricing of any real estate that you are looking at.
You need to invest some time before you invest your money. You should look at the area where you are considering buying real estate. How is the city or neighborhood doing economically; are they in an upswing or a downturn; what about surrounding property; what industries drive the local economy; and are there any other factors that could have an impact on real estate prices?
Of course, the best you can ever do is make an educated guess. Real estate investing is still investing, and that means there is always some level of risk. In fact the more convinced you are that a certain piece of real estate is a sure thing, the more cautious you should be. There is no sure thing.
That being said, apart from the occasional housing bubble, real estate tends to make a very sound investment. At the very least, you will always have something to show for it. In other words, it’s not just a piece of paper representing stock in the company, but rather a physical asset, and the bad always has some value.
Perhaps the right answer to “how does real estate investing work”, is “very well as long as you take the time to consider each purchase before you make it”.