How Does Real Estate Work?


Real estate is land and anything that’s attached to it. It can be used for residential,

commercial or industrial purposes.

Investors buy and sell houses, apartment buildings and other forms of residential

real estate to turn a profit. They also invest in land that generates income through

rental properties, such as farms and mines.


Property Management

A property management company handles the financial and maintenance tasks of

renting out properties. These include assessing potential tenants, screening

applicants for criminal records, credit history and previous evictions, and verifying

that prospective renters have sufficient income to pay the cost of living in their

chosen area. Property managers charge a fee, typically a percentage of monthly rent

collected, to property owners. Read more


Commercial real estate refers to buildings used for business purposes, such as office

space, warehouses and strip malls. Real estate brokers and agents who specialize in

commercial property can help buyers or sellers find what they’re looking for, but

they don’t directly manage the properties themselves.


Some investors who buy rental properties don’t live near them or don’t want to deal

with the day-to-day management tasks themselves, especially if they have another

full-time job. In these cases, a property manager can be invaluable. They can take

care of the property in a location where they’re not based, and ensure that the

rental properties are up to code and meeting government regulations.


Mortgage Lenders

Mortgage lenders offer financing to homebuyers for real estate. They set the terms

and interest rate, and verify a borrower’s creditworthiness. They also establish their

own loan programs and guidelines. They use a three-digit credit score as the main

factor when qualifying borrowers for loans.


Another important factor is employment history. Lenders will look for a steady work

history over the past two years. They’ll review pay stubs, tax returns, brokerage

statements, and other documentation to verify income.


Mortgage brokers act as intermediaries between a mortgage borrower and either

direct or retail lenders. For a fee, they help buyers comparison-shop from their

network of lenders. They may also assist in the loan application and document

preparation process. Correspondent lenders are the initial lenders who make a loan.

They may service a mortgage or sell it to the secondary market. Portfolio lenders

offer more flexible lending to borrowers with unique circumstances, such as those

seeking a no doc or stated income loan.



In real estate, a syndicate is an arrangement where a group of investors pools their

resources to buy or build a property. This can be a great strategy for beginning and

seasoned investors alike.

Syndicators typically earn an acquisition fee, which is usually between 1% and 5% of

the purchase price. Investors, on the other hand, receive a preferred return on their

investment, and the remaining profits are split depending on the syndication



Investors can expect to see a positive ROI over their projected hold period, which is

typically 3-5 years. This is comprised of ongoing cash flow returns and the eventual

profit from the sale of the asset.


In addition, real estate syndication offers the benefits of passive income and tax

advantages. Essentially, you’ll be able to diversify your portfolio without having to

worry about 3 a.m. calls from tenants complaining about clogged toilets! This can

make it easier for you to retire at an earlier age.


Development and Construction

Real estate development includes the purchase of raw land to erect buildings and

improvements that will be sold or leased to end users. Real estate developers handle

the entire process, from looking at and investing in properties to working with

municipalities to secure permits and overseeing construction. They also typically

work with a team of other professionals, such as engineers, architects, city planners,

surveyors and contractors.


Once permits are in hand, the real estate development team works with a contractor

to construct buildings on the property. They then market the building to potential

tenants, ideally striking a pre-lease agreement. Tenants can then move in and start

conducting business, which will generate income for investors.


As the world continues to shift toward digital and e-commerce, it’s no surprise that

commercial real estate is becoming more attractive as an investment option. As

such, investors are swapping out stock and bond investments for the potential to

earn higher returns by owning buildings that house online retailers and logistics


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