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How to Use Real Estate as an Investment

By Charles Hopkins Published 09/19/2006 | Entrepreneur

Different people make their fortunes in different ways. For some, its through investing in the stock market, for others real estate has been their ticket to the good life. If you have some basic knowledge of how the real estate market works, you can use it as a profitable investment tool.

The first step in using real estate as the basis of your investment portfolio is to have at the very least a rudimentary understanding of the real estate market in your area. You should be schooled in the market trends over the past several years, as well as, the projected outlook in the future. Obviously, those who are successful in real estate wouldnt find it appealing to purchase properties when the market is in a downward spiral.

Once you believe that you know the basic trends in real estate in the area you are interested in, youll need to decide on what types of properties to invest in. Some wealthy individuals have made their fortune in the area of commercial real estate. They find great success in either building or buying commercial properties and renting them out. This can be a wonderful path to follow if you have an understanding of the business climate in your area. If more and more businesses are beating a path to your community, commercial real estate investment can be extremely lucrative.

If you are interested in starting on a smaller scale, consider the idea of purchasing single-family dwellings. If you dont own your own home, this is a great place to start. Its very rare for a millionaire to be renting the space in which they live. The main reason for this is that the monthly amount that is allotted to rent is filling someone elses pocket. If you own your own property, the monthly payment you are making is going at least partly towards the principal which means it is increasing your own financial portfolio.

Once you have a taste of how rewarding it is to own your own place, youll see the appeal of getting more involved in the area of real estate investments. Consider purchasing another single-family dwelling and renting it out.

You can purchase a property that you know will be appealing to those individuals who want to rent. Many people do find rent more appealing for several reasons including being short-term residents because of work or not having the resources to make a down payment. If you purchase a home and then rent it, you are using the property as an investment.

The rent will go towards your mortgage payment and other expenses on the property. If the market surges upwards you can then sell the property and make a profit. In the meantime, with the rent payments, the property isnt going to cost you anything to maintain.

Using real estate as an investment can be a financially rewarding experience if youve done the proper research and keep a close and watchful eye on the real estate market.