The Basics of Real Estate

Jamell Tousant

October 11, 2022

Real estate is the ownership of a piece of land or property. This could be a house, an apartment complex, a strip mall, or an underground parking lot. There are many things to know about real estate before investing. For example, understand the difference between residential and commercial real estate. In addition, you should be aware of the tax implications of owning real estate.

Commercial real estate is a non-residential property

Commercial real estate, or CRE, is the construction and ownership of properties that are not residential. It may include a single building or multiple units within one building, or it can be the site of a commercial project. Commercial properties are generally built for business or marketing purposes. Other non-residential types of property include hotels, warehouses, and automobile repair shops.

Commercial real estate is an important market for investors because it is used for non-residential activities. The owners of commercial properties can run their business from there, or they can lease space to other businesses. Many companies prefer to rent their property rather than purchase it outright because renting frees up capital for core business investments.

Residential real estate is a family home

Residential real estate is land for residential purposes, such as a family home. This type of property is different from commercial real estate, which includes land zoned for businesses. By purchasing residential real estate, you can earn passive income from home itself and resell it for a profit if the value of your property rises. The most common type of residential real estate is a stand-alone house.

There are many different types of residential real estate. One type of residential property is a duplex. A duplex is a two-unit building designed to house two separate families. Another type of residential property is a triplex or a fourplex. These properties are usually privately owned and have no common areas. Other types of residential property include three and four-unit buildings, townhouses, and multi-family units. Multi-family houses can have as many as four units, each with a private entrance.

Tax implications of owning real estate

Owning real estate can be profitable, but it also comes with its share of tax implications. As an investor, you should keep this in mind. You will need to pay taxes on your investment, both during the purchase and the sale. However, there are ways to spread out the tax burden on your investment, depending on the legal structure of your real estate business.

First of all, you should consider your state’s income tax rates. In most states, you must pay income tax on capital gains and rental income. This will vary greatly depending on the city or state in which you live.

Leverage

Leverage in real estate is a way to increase your returns on investment properties by using other people’s money. For example, if an investor wants to purchase a $150,000 home but needs to put down an additional $50,000 for rehab, he can use a hard money loan to help cover the remainder. He can also put down ten per cent of the purchase price to cover the rehab expenses. That leaves him with $20,000 of his own money, and he can sell the property for $350,000.

Another way to calculate leverage is the loan-to-value ratio (LTV). This is an essential metric for real estate investors looking to finance a fix and flip. In these situations, the LTV will reflect the after-rehab value of the property.

Property management

One of the basic principles of real estate is property management. A property manager charges a fee for their services. This fee usually covers marketing, background checks, and paperwork. Some property managers charge a flat fee, while others take a percentage of the monthly rent. A good property manager can save thousands of dollars in turnover and vacancy costs.

Property managers work closely with owners to help them rent out their properties. An empty property is a nightmare for landlords, so they strive to make the rental process as easy as possible. They post For Rent signs, update rental ads online, host open houses, and communicate with current tenants to seek referrals.