To understand the concept of investing in real estate you must first have an understanding of the concept of investment. Investment refers to the process of making a profit from a very specific venture or activity. Most of us are familiar with investing in stocks and bonds. You purchase shares of stock in a company with the intent of turning a profit. The profit we receive will depend on how well the company does and how much we are willing to pay for the stock.
Another form of investing is bonds investing. Bonds investing refers to purchasing fixed rate loans using the asset being purchased as collateral. When interest rates rise the amount of money you can borrow from your lenders is reduced. If you have fixed rate assets such as government bonds, CDs or savings accounts the cost of borrowing from them decreases. The asset being used as collateral also decreases over time. If you are long term bond investor you will make a profit on your investments because as interest rates rise so will the amount you can borrow from your lender.
Another form of investing is foreign stocks investing. Foreign stocks refer to companies that are domiciled outside of the United States. A large number of these stocks are traded on American Stock Exchanges (ASX) and New York Stock Exchange (NYSE). Many investors prefer to buy international stocks via foreign exchanges for two reasons. First, they can obtain companies with a lower cost of capital because of the lack of taxes on U.S. corporations that have operations outside of the states where they are domiciled.
Another form of investing is real estate investing which refers to purchasing property within the United States and the abroad. Property can be purchased from individual owners, banks, developers and corporations. Purchasing property is done so as an investment portfolio and as a secure source of an asset. It provides a means for diversification away from equities and bonds as it gives greater returns on less risky investments.
One way of investing in the stock market is through options trading. It is done so as an alternative to investing directly in stocks through buying shares of ownership in a company. As an option a trader buys an option to purchase a specific option contract for a specific price. When the strike price for the option is reached an automatic trade is effected which results in a profit for the investor.
Investing in mutual funds is one of the best ways of saving money for retirement. These types of funds are managed by an experienced team of professional investors who invest in various securities. In addition to providing higher returns for longer-term investments, these types of funds also offer higher returns short term. They do this by making regular investment decisions with respect to investing in savings, bonds and other securities.