If you are thinking of investing in real estate, there are a few things to consider.

First, there are many types of real estate investment, and investors typically specialize in a few, so develop some breadth of understanding before diving into the market. Second, understand that some of these investments are much more hands off than others. Third, for the RE investments that are hands on, it is important to view these investments as businesses.

There are many mini-articles describing the most common types of investment accessible to beginning investors. These descriptions are useful, but also useful is an understanding of the base factors that define the different investment types. These factors are: the type of property purchased, what is done to the property, and the end vehicle used to pass control to another investor.

There are many types of property to buy: simple control (lease option, long-term lease), managed equity (shares in a REIT), barren land (no assets on land), land and assets (trees, minerals), small residential (single family through three family), medium residential (four unit through twenty unit), larger residential (20+ residential units), small commercial, medium commercial, large commercial, and industrial.

Once you have a property, you choose one or more of the following actions to perform to create value: hold, protect, clean, maintain, repair, upgrade, build, lease, harvest assets, repackage(condo, reparcel). Each of these actions take varying levels of experience, knowledge, and time. Not all properties lend themselves well to all of the actions. Matching the type of property to the action is the one of the skills of a great real estate investor.

Eventually, in exchange for liquid capital, a saavy investor passes control of the property into the hands of another investor. The new investor is ideally one with different specialties who can realize more profit from the property because of market conditions. Control can pass in a variety of ways and is dependent on the standards of the area. Selling and long term leasing of property are typical options. Repackaging property into an equity vehicle and selling the equity is another way of freeing capital for further investment and diversifying risk.

An investor’s choices in the three base factors, their implementation, and market factors all define an investment’s return and determine the risk/reward ratio and time commitment required. Real estate investing can be extremely rewarding, especially for the prepared. Start small, but develop a breadth of knowledge that will provide you with the ability to recognize opportunities that others can not.

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