What is real estate investment? I’m glad you’re asking. There’s really no mystery to it, but if you haven’t ever really thought seriously about it before now, you might find the topic intimidating.

So let’s start with a simple definition, courtesy of our friends at Wikipedia who aren’t afraid to tackle any topic, and have this to say about what is real estate investment:

“Real estate investing involves the purchase, ownership, management, rental and/or sale of real estate for profit...Real estate is an asset form with limited liquidity relative to other investments, it is also capital intensive (although capital may be gained through mortgage leverage) and is highly cash flow dependent. If these factors are not well understood and managed by the investor, real estate becomes a risky investment.”

Wow, did you catch that last part in the definition of what is real estate investment? That’s crucial, and I couldn’t agree more. You’ve got to understand and manage some basic concepts of real estate investment to be successful, and that’s what HowManyDoors is all about - learning what you need to know so you can be successful!

But let’s take a step back and make sure we thoroughly discuss what is real estate investment, because there’s also no doubt in my mind that you can profit from a real estate investment, but you should understand how a choice to invest in real estate is different than a choice of any other investment, like stocks, bonds, mutual funds, IRAs, and the usual stuff.

These are the primary ways that make a real estate investment a better choice. For what is the reason for any investment? Getting a return on your money!

• Create Regular Cash Flow: Generate an extra paycheck when you rent out your property and let the rent you collect cover the mortgage, insurance, property taxes and maintenance costs. Then you pocket the rest. That’s what is meant by cash flow from your real estate investment.

• Tax free cash flow: That's right! Because of depreciation and mortgage interest deductions (if you’ve leveraged your capital), your cash flow should be tax-free. Most investors will never pay taxes on their cash flow and wait for capital gains on the future sale of the property.

• Gain leverage:  Real estate gives you a tool that you won’t get with a stock market investment: leverage. When you buy a stock, you pay the full share price as it’s valued at the time of your buy order. But when you buy a property, you can pay as little as 5% (in some states) up to only 25% and then you control the whole value of the property as soon you sign off the paperwork. The ability to leverage your capital increases your overall return on investment.

• Grow, tax-free: Over the long-run buying a rental property based on cash flow with appreciation is a great investment. There are other options you may consider in the future to reduce your tax burden, such as a 1031 exchange, charitable trust, or an installment sale to lesson your future tax liability.

• Make inflation your friend: Rents increase over time, and increase faster than your property expenses, so your cash flow and operating profit should rise, too. Especially if you finance with a 30-year mortgage, making your largest expense a fixed cost. I can’t think of any other investment that provides protection from inflation, making real estate investment unique compared to other investments.

So what is real estate investment to you? A good investment or not? Making an investment in real estate to hold long term for the income and appreciation of value can be a smart way to create long term wealth, you just need to prepare yourself. Taking a well-structured approach towards property ownership will take the mystery out of it. Let’s get started, shall we?

Click here for the Basics of Real Estate Investment and you’ll be teaching others about what is real estate investment right along with me!