Real estate investment involves the purchasing, holding, possession, control, rental and/orsale of real estate as a whole for profit. Besides, the improvement of real estate property within a real estate investment plan is usually regarded as a sub-speciality of real estate investment called real estate construction. A few other subspecialties under the field of real estate investment are represented by leasehold improvements (also known as leased industrial or leased commercial properties) and land trust.
There are two basic approaches to real estate investment. One of them is called the use of leverage, which means increasing the value of the physical asset, such as land or building through the use of money; while, on the other hand, an alternative approach to real estate investment is represented by the use of financial tools, such as contracts, derivatives, and other financial products. An important thing to remember for investors is that, although the profits resulting from real estate investment are based on the physical assets, the profits should still be maximized by appropriate utilization of the financial instruments available to the investor. Usually, when people think about the possibility of investing in real estate, they consider only the property part of the real estate investment and ignore the financial aspect of the activity.
Some of the financial instruments used for real estate investments are derivatives, such as interest rate swap agreements and forward contract arrangements; real estate investment is also represented by certain types of financial products, including real estate investment trusts and real estate investment companies. However, different strategies applied in the different kinds of real estate investments have different impacts on the performance of these investments. Therefore, it is very important for investors to understand each of the strategies and to choose the most appropriate one for their own type of investment.