How real estate investment works (passive income style, except for sourcing for new tenants/upkeeping the property):
Although the real estate market has plenty of opportunities for making big gains, buying and owning real estate is a lot more complicated than investing in stocks and bonds.
Basically, since the olden times:
Buy property > rent it out (Income)
–> Pay mortgages and taxes (expenses)
Income – expense = net income (profit)
Common strategy is to be patient and only charge enough rent to cover expenses until the mortgage has been paid, at which time the majority of the rent becomes profit.
Besides this profit, possible for residual value (selling off the property after renting etc) if there is an appreciation in value for the property.
Modern days: Possible for flipping.
Buy property > renovate > resell > profit.
May end up with a bad tenant who damages the property or, worse still, end up having no tenant at all. This leaves you with a negative monthly cash flow, meaning that you might have to scramble to cover your mortgage payments.
There is also the matter of finding the right property. A property in the wrong location will not generate any rental income.
Perhaps the biggest difference between a rental property and other investments is the amount of time and work you have to devote to maintaining your investment.
Other forms of investing:
Real estate investment group
Real estate investment groups are sort of like small mutual funds for rental properties. If you want to own a rental property, but don’t want the hassle of being a landlord, a real estate investment group may be the solution for you.
REITs – Real Estate Investment Trust
REITs are created when a corporation (or trust) uses investors’ money to purchase and operate income properties.
REITs are bought and sold on the major exchanges, just like any other stock. A corporation must pay out 90% of its taxable profits in the form of dividends, to keep its status as a REIT. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed its profits and then have to decide whether or not to distribute its after-tax profits as dividends.