THE OBJECTIVE AND THE SCOPE OF REAL ESTATE INVESTMENT

In general, the primary purpose of any investment is none other than to produce income or profit, or balancing the profit the investor desires against the risk. Real estate offers the opportunity to make a profit in three different ways: appreciation, positive cash flow, and tax benefit. As we know, real estate investors come in many varieties ranging from the individual who buys one rundown property and fixes it up for resale or rental to the other individuals, or corporations who acquire large commercial complexes such as shopping centers and factories. While appreciation, positive cash flow, and tax benefit are some of the ways to generate profitability on the real estate investments, such leverages allow more money to be made on less investment.

For example, suppose an investor buys a $100,000 property with an initial investment of $10,000 for down payment and closing costs. The property appreciates $3,000 the first year has a positive before-tax cash flow of $50 a month, and produces a tax savings of $400 for the year. This $4,000 is only 4% of $100,000 which is not a very good return on an investment. However, if it is 40% of $10,000 then it is an excellent return on an investment.

Moreover, real estate like any other investment also involves risks. The real estate’s market value can decline, deteriorate, or even the area surrounding the property can change; adversely affecting the property value. Perhaps, rent or income may not meet expectations. Neither plants nor military installations nearby can be opened. Environmental problems may adversely affect the property so if any of these things occurs, the effect may be compounded by the real estate’s lack of liquidity (the investor most likely cannot sell the property instantly for its full value).

Next, when it comes to discussing the scope of the real estate business, it is extensive and is a complex type of industry. Normally, when people think of the real estate business, they think only of residential brokerage. Well, this is just one of several specializations within the real estate business where in fact, there are multiple specializations rooted within the field of brokerage including farm and land brokerage, residential property brokerage, also commercial and investment property brokerage.

In addition to brokerage, other specializations in real estate include property management, appraising, financing, construction, property development, real estate education, and government service. Although real estate transactions can be traced to early written records from biblical times, however, those transactions were between the seller and buyer directly without the participation of a real estate broker. Bottom line, the business of real estate brokerage is a product of the twentieth century whereby in the early 1900s for example, many states began enacting licensing law legislation and today all states in the nation require real estate brokers or salespeople to be licensed.