Real estate investing
From Wikipedia, the free encyclopedia
 |
This article may require cleanup to meet Wikipedia's quality standards. Please discuss this issue on the talk page or replace this tag with a more specific message. This article has been tagged since September 2006. |
Real estate investing involves the purchase of real estate for profit. Profits are accumulated slowly by renting out properties in a cashflow method, or are generally improved and resold for a capital gain. In addition, real estate investors may wholesale properties as a means to make profits.
[edit] Advantages
There are many gurus out there that contend that real estate is a panacea where you cannot lose money. Although this is false, there are a number of advantages to investing in real estate.
The first big advantage is that it is an extremely expensive product. Each sale you make generates more profit potential for this reason.
Leverage, or the ability to borrow based on the value of the property, is probably the second greatest advantage. It is much easier to finance real estate than any other product. While investing in most assets requires the purchaser to have the full purchase price available for the asset, in real estate investing, one only needs to have a fraction of the purchase price available (like 5%, 10% or 20%) as a down payment. Therefore, real estate, although incredibly expensive, is still easier to buy than say, a piece of industrial equipment of the same value.
Local advantage is rarely discussed but it stands to reason that you know your neighborhood better than a real estate investing expert would if they were in another part of the world. This creates an advantage the beginner can exploit in his market.
In brief, real estate investing is worth exploring. The bulk of the worlds assets are in real estate. Common people everywhere own it and are giving it up in foreclosure, sickness, death, job transfers, divorce, or an inability to maintain it or pay tax on it.
The best way a beginner can get started in real estate investing without taking on any personal risk is to 'bird dog', or hunt for good deals, for another more experienced investor. This is an excellent strategy because it allows the beginner to learn the most valuable skill an investor has: their ability to find and recognize value.
Although investing in real estate doesn't require an advanced degree, a basic understanding of business will go a long way to succeeding in such ventures. If one's looking for a "hobby", real estate investing should be at the bottom of the list. However, if you're ready to put a good faith effort into learning and doing investing, it will certainly pay off in the long run.
[edit] Disadvantages
Real estate is an illiquid investment and it should be part of a balanced investment portofolio having liquid assets that could be quickly converted to cash to sustain the real estate when the returns it reaps is not acceptable to the investor.
