If you are looking for a way to diversify your portfolio, you may be thinking about dipping your toe into the real estate market. This investment allows you to leverage your money and the properties you purchase into other opportunities. However, these are a few things you need to learn about real estate investment before you get started.

Benefits of Investing

When you pursue property investments, you should experience a few benefits. First, you should receive positive, long-term returns and income from multiple sources. A strong investment will produce a steady cash flow. In addition, the stock market has a greater risk than the real estate market because most properties increase in value over time. Finally, you will be able to increase your tax deductions, from added depreciation to property tax, travel expenses and repairs.

Possible Drawbacks of Investing

Although you aren’t typically facing as much risk when you invest in real estate, your returns aren’t typically as high either. These investments are also not considered liquid investments, which means that getting your money out of them, or selling them, can’t be done quickly. In addition, you may have to produce a significant amount of up-front cash for closing costs, down payments and any renovations your property needs. Finally, you either need to manage your own tenants or pay a property manager.

How You Make Money

Your property investments produce four types of income or money. First, your net worth increases when your real estate appreciates in value. Your property value increases due to scarcity or any renovations or upgrades you complete.

You can then use this appreciation as leverage for future investments. You may also receive cash flow income. Your cash flow is the result of renting out your property. You often earn more on commercial real estate than residential, but both should produce cash flow.

You can also earn money outside the actual property. For example, you may earn an ancillary income on vending machines and other amenities, such as laundry facilities. In addition, if you are involved in the real estate transaction process, e.g., you are a realtor, mortgage broker, real estate attorney or contractor, you can earn money from the real estate transaction or the renovation process.

Types of Properties

There are two major types of properties you can invest in, residential and commercial real estate. However, commercial properties can vary significantly. For example, you may invest in multifamily properties, such as apartment buildings or fourplexes. You can also invest in manufacturing, storage, retail and mixed-use facilities, which are considered commercial properties.

To experience success, do your research and learn everything you can about real estate investment.