Real estate investing can be a profitable experience if you have a good understanding of the process involved. Before you spend your hard-earned money, you’ll want to learn all you can about the real estate game.

There are two ways to make money with real estate investments. First, you can buy real estate outright, such as with the purchase of residential homes or commercial property. Second, you can invest in financial instruments such as real estate investment trust (REIT) shares or real estate developer shares.

Although there are several types of real estate investments, most are classified as residential or commercial. Residential real estate generally includes family, vacation or second homes, as well as rental properties. Rental properties can include everything from duplexes and apartments, to mobile homes and condominiums.

Although multi-family properties, such as apartment buildings or condominium complexes, are residential, they fall under the category of commercial properties. Other commercial properties include office buildings and complexes, shopping malls, malls, retail stores, and restaurants.

Another type of commercial real estate investment is vacant land. Investing in vacant land located in rapidly growing areas, or in areas that are expected to grow within a few years, can be exceptionally profitable. Vacant land can be used for farming or ranching, or for erecting office buildings or housing communities.

Many people prefer to invest in residential real estate. Often these properties are used for rental purposes. Rental properties have the potential to provide a good return on investment; however, it can take several years to turn a profit.

One option for those who invest in rental properties is to use them as rent-to-own homes. With rent-to-own properties, the home is rented to an individual for a certain period of time. Generally, this time period is two to five years.

During this period, a percentage of the rent is applied to the purchase of the home. At the end of the lease, the renter obtains financing through a traditional lender and purchases the home using the applied rent as a down payment. If the tenant breaches the lease, the landlord may sell the property or enter into another rent-to-own agreement. Therefore, this type of real estate transaction is relatively risk free.

When engaging in rent-to-own transactions, certain legal documents are required to ensure the validity of the contract. In addition, the Internal Revenue Service requires specific accounting records.

Last but not least, moving houses is becoming quite popular among real estate investors. Moving house means buying a house that needs repair or renovation. The home is purchased at market value, leaving investors with additional cash to make repairs and update the home. Once the repairs and updates are complete, the home is sold for a profit. The entire transaction usually takes place within three months.

Although moving home is often a profitable real estate investment, it is not without risk. If you decide to go this route, take the time to educate yourself on the real estate market where the property is located. Otherwise it could sit on the property for quite some time.