The “Ins-and-Outs” of Investing in Real Estate from the Perspective of a Long Island Real Estate Agency

Many people, when thinking of investments, think of stock portfolios, bonds or a savings account. Real estate investment is often ignored or overlooked due its lack of status as a “standard assets,” or the tremendous difference in obtaining and managing a real estate investment.  An investment in real estate on Long Island, especially with the help of a reputable Long Island real estate company, can be quite lucrative, or at the very minimum a reliable source of additional income, helping to support your livelihood, diversify your portfolio and fund other investments. Real estate investment is also a good arena for people who are not investors, or not risk takers, simply looking for an extra (or sole) source of income.

Real estate investment on Long Island can mean several different things: purchasing real estate, selling real estate, renting real estate. The real estate can also take the form of residential, commercial or industrial properties.  A residential property is, as it says in the name, one in which someone resides. They typically consist of single or multi-family private homes, townhomes or condominium units. Commercial real estate consists of property that is used as retail, office space, farm land or a residential complex greater than four units, such as a large apartment complex.  Industrial real estate property include factories and shipping and storage plants.

There are many ways to invest in real estate to make money, including both active and passive investments.  Active investment involves extensive involvement (or delegation) from the investors part and requires some level of real estate knowledge.  Passive real estate investment typically involves only a monetary contribution, while real experts will invest the money on the investors behalf.  Typically, knowledge of the Long Island real estate market is not required. There are multiple opportunities in both active and passive real estate investments to make money.

Rentals.  A popular form of active real estate investment on Long Island, owning single or two family homes that you rent can provide a substantial source of extra income (although residential, commercial and industrial properties can all be rental properties).  Owning rental properties is hands on, but has the potential to serve as a long term investment strategy. It, of course, first requires purchasing or owning property. If you do not have the property already, it is important to find a real estate agent on Long Island that is knowledgeable about the real estate markets and codes or requirements for rental properties.  Once you have the property, renting it becomes hand on (or requires hiring a management company to take care of the rest). You will have to find tenants for the property, as each month without a tenant is money you could be earning but are not. After renting the unit, the requirement of the landlord, governed by state law are quite extensive. These duties include maintenance of the property, repairs, emergency services, collection of rental and eviction proceedings, if necessary.  If you would like some weight lifted off of your shoulders, there is the possibility of hiring a management company. However, this will lessen your flow of income.

Flipping homes.  Flipping homes, another active form of real estate investment, involves buying “fixer-upper” properties at low cost, renovating them, and reselling for a profit.  This is a much more short term investment strategy than renting, because ownership of the home is short lived. However, purchasing a home in the right area and making extensive improvements can lead to a lucrative payout after resale.  Flipping a house typically also requires deep pockets and extensive knowledge of the real estate market and industry, or the trusted guidance of a real estate agent. From a money perspective, an investor needs either enough funds to cover the cost of the home and the renovations or good enough credit to qualify for a mortgage or loan.  Financial prowess comes further into play in the efforts of the investor to stay within budget, which presents unique challenges in the home flipping industry as you can never truly be certain what is behind a wall until it is knocked down. However, if pulled off successfully, an investor could make a substantial amount of money selling a brand-new home in a prime neighborhood.

Private equity funds, or a pool of money from various investors for the purpose of making investments, can be used a passive form of real estate investment.  There are typically set up as limited liability companies and operated by a manager. While the manager would likely consult the investor about opportunities, the investor is not required to have day to day involvement in the investment.  Typically, only accredited and institutional investors with high net worths have access to private equity funds as a typical minimum investment is $100,000 or more.

A real estate investment trust, or REIT, is another form of passive investment and is a company that makes investments in commercial real estate, offering portfolios of investments to investors.  Investors purchase shares of the company and earn profits off of the company’s success. At least 90% of the income earned by the REIT gets distributed to its shareholders and is a more simple way for the “average” investor to invest in real estate with smaller amounts of money and time dedication.

If you are looking to invest in the real estate market today, contact a Signature Premier real estate agent and a trusted financial advisor to get started.