Be it rental properties or home flipping, real estate has always been one of the most profitable businesses. A realtor can easily make around $106,000 on a 4 million property. So, imagine the huge amounts a business can generate.
For example, if you’re an investor or house flipper, you can sell the properties to house-buying companies who advertise themselves stating that we buy houses in Gladstone, for instance. This gets you instant sales for market competitive rates with little effort.
But for your business to be really successful, you need to first understand the basics of real estate business. So, in today’s post, let us discuss the ins and outs of real estate business!
What Is Meant by Real Estate?
Real estate refers to property made up of land and buildings on it. So, it can include homes, offices, shopping centers, and factories. Practically any building that can be sold, bought, or rented is counted as real estate.
People buy real estate as a place to live or as an investment. Sometimes, they rent it out to others to make money. There are different types of real estate, like residential (where people live), commercial (for businesses), and industrial (for factories and warehouses).
Real estate is important because it provides places for people to live, work, and play. It is also a big part of the economy, affecting jobs and the money people spend.
Types of Real Estate
| Residential | This includes homes, apartments, and condos where people live. |
| Commercial | This includes offices, stores, and other buildings where businesses operate. |
| Industrial | This involves factories, warehouses, and other large buildings used for manufacturing and storage. |
How Does the Real Estate Business Work?
The real estate business involves buying, selling, renting, and managing properties. It is a major part of the economy and affects where people live, work, and shop. Let’s break down how this business works in a simple way.
Key Players in Real Estate
First, let’s have a look at who are the most common people involved in a real estate business:
- Real Estate Agents
Agents help people buy and sell properties. They list properties, show them to potential buyers, and handle negotiations. They earn a commission, usually a percentage of the sale price.
- Real Estate Brokers
Brokers are similar to agents but have more training and can own their own real estate businesses. They supervise agents and help with complicated transactions.
- Investors
Investors buy properties to make money. They might rent out properties or sell them for a profit when prices go up.
- Property Managers
Managers take care of owners’ rental properties. They handle maintenance, collect rent, and deal with tenants.
Steps in a Real Estate Transaction
Now that we know the important people, let’s see how a real estate deal actually occurs:
- Listing the Property
When someone wants to sell their property, they hire a real estate agent to list it. The agent takes photos, writes a description, and markets the property. However, hiring a realtor is not mandatory and people can also do this step by themselves.
- Finding a Buyer or Tenant
Agents show the property to potential buyers or tenants. They arrange open houses and advertise the property online and in print.
- Making an Offer
When someone wants to buy or rent a property, they make an offer. This offer includes the price they’re willing to pay and any conditions they have.
- Negotiation
The buyer and seller (or landlord and tenant) negotiate the terms of the deal. This might involve the price, move-in date, or any repairs needed.
- Inspection and Appraisal
The buyer usually hires an inspector to check the property for problems. The lender may also require an appraisal to make sure the property is worth the loan amount.
- Closing the Deal
Once everything is agreed upon, the buyer and seller sign the final paperwork. The buyer pays for the property, and the seller transfers ownership.
Please note that most people can’t pay for a property all at once, so they get a loan, called a mortgage, from a bank. The buyer pays a down payment upfront and repays the loan over time, with interest.
Some Important Points
Before you go, let’s talk about how exactly do you make money in a real estate business. Well, first there is the traditional method of appreciation. Over time, properties usually increase in value.
So, investors buy properties, hold them for a few years, and sell them for a higher price. This usually gets the best return on profit. Some investors buy properties that need fixing up, renovate them, and sell them quickly for a profit – also called house flipping.
However, remember that property values can go up and down based on the economy. During a recession, property values might drop, making it hard to sell for a profit.
The next popular way is rental income. Property owners rent out their properties to tenants. The rent they collect can cover the mortgage and provide extra income, so the more rental properties you have, the more you will earn each month.
