A real estate entrepreneur or a real estate investor to a lesser extent is someone who actively or passively invests in real estate. An active investor may buy a property, make repairs and/or improvements to the property, and sell it later for a profit. A passive investor might hire a firm to find and manage an investment property for him. Typically, investors choose real estate for several reasons: cash flow, capital appreciation, depreciation, tax benefits and leverage. Appreciation occurs over time, generally, though an investor may "force the equity" in a property by making enhancements to it or the surrounding environment to increase its value. In general, residential real estate is valued by the "comparable sales" method which estimates the value of property under the principle of substitution. The method estimates property values by comparing a subject property to similar properties sold in similar locations within a recent period of time. Depreciation is one of the many benefits afforded to real estate investors. Though the property is actually increasing in value, the government allows owners to systematically depreciate the property over its projected useful life span. Depreciation is an allowable tax deduction. In addition to depreciation, an investor will usually claim the interest portion of his monthly mortgage payment as a tax deduction.
