Real estate investing means managing the investment put into real estate. This involves the process of purchase, ownership, management, rental and/or sale of real estate property for gain or profit. The improvements done on a real estate property is part of a real estate investment strategy of real estate investing called real estate development. Real estate is an asset because it is an economic resource meaning it is capable of being owned and controlled to produce value, or cash.

Real estate has limited ability to be converted to cash as compared to other investments. It is also capital intensive and is highly dependent on cash flow no matter how profitable it is. These factors should be well understood and managed by the investor; otherwise the real estate becomes a risky investment. A negative cash flow is the primary cause of investment failure for real estate. When the investor goes into this situation for a period of time, the investment will not be sustainable and the investor will often be forced to resell the property at a loss or undergo bankruptcy.

Investment properties like scottsdale az homes for sale can be sourced from market listings through a Multiple Listing Service or Commercial Information Exchange; from real estate agents; wholesalers such as bank real estate owned departments and public agencies; public auction like foreclosure sales and estate sales, and from private sales. Real estate assets are very expensive compared to other widely available investment instruments such as stocks or bonds. Real estate investors seldom pay the entire amount of the price of a property in cash but this is usually financed by mortgage loan using the property as collateral. To be successful, real estate investors must manage their cash flows to create enough positive income from the property to at least offset the carry costs.

Commonly, investment property generates cash flows to an investor in four general ways: from net operating income or the sum of all positive cash flows from rents and other sources of ordinary income generated by a property, minus the sum of ongoing expenses, such as maintenance, utilities, fees, taxes, and other items; from tax shelter offsets taken from depreciation, tax credits, and carry-over losses which reduce tax liability charged against income from other sources; equity build-up which is the increase in the investor’s equity ratio as the portion of debt service payments devoted to principal accrue over time which counts as a positive cash flow and capital appreciation which is the increase in market value of the asset over time, realized as a cash flow when the property is sold. Capital appreciation can be very unpredictable but when made a part of a development and improvement strategy in investment, may be a source of great cash flows.

Purchase of a property, like the scottsdale az homes for which the majority of the projected cash flows are expected from capital appreciation, is a sure investment in real estate.