The Real Estate Process



Many people dream of owning their own home so they can stop sending rent checks to someone else each month. Others invest in real estate as a way to boost their income and diversify their portfolio. Whatever the motivation, investing in real estate works differently than investments in stocks, bonds and mutual funds.

A key to understanding real estate is the concept of value. A property’s worth is determined by what someone is willing to pay for it, not by its physical attributes or what the seller wants to get out of it. The value of a property can be affected by several factors, including its location, market demand and current supply.

The Basics

Real estate is land plus any structure — such as a house, office building, apartment or strip center — that rests on it. It can also include rights to the air above the land and underground resources below the ground. Real estate investors often purchase properties for use in residential, commercial or industrial purposes. They can then either sell them or hold onto them and rent them out to tenants for income. Read more


Investors usually make money by buying low and selling high, a process known as “flipping.” However, this strategy requires the right price estimate to buy low and avoid spending more than the property is actually worth. It can be challenging to find and secure such prices, especially in a highly competitive housing market.

Most buyers purchase their real estate with a mortgage, which reduces their out-ofpocket expenses. They can also take advantage of tax deductions on interest and property taxes, as well as depreciation. Buyers should seek pre-approval for a mortgage before viewing property to ensure that they can act quickly if they find a home they want to purchase.

The housing market is considered a bellwether for the economy as a whole, with rising home sales indicating good times and falling ones indicating a recession. The number of homes for sale, or inventories, and demand are the main drivers of the real estate market.


Another way that real estate investment differs from other types of investments is that the industry is hyper-local, whereas stock markets and other assets are based on national or state-wide trends. This is why local real estate markets are able to react much more quickly to economic factors, such as interest rates, than other markets. Real estate investors can keep tabs on market trends on a house-by-house or neighborhood-by-neighborhood basis rather than having to wait for the national numbers that are reported in the media. This local focus can be a major benefit for those interested in the business. However, it can also mean that national statistics are more difficult to interpret. This is particularly true in the case of home sales, where a single data point can throw off an entire analysis. In such cases, it’s a good idea to seek the help of a knowledgeable real estate agent for guidance and interpretation.

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