Recognizing the effectiveness of Real-Estate Investing:

Recognizing the effectiveness of Real-Estate Investing

 Gordon van Eeden

Recognizing the effectiveness of Real-Estate Investing

Despite all its potential, real-estate investing isn’t lucrative at all times and for all people here’s a quick outline of the biggest effectiveness that accompanies investing in real estate:

Recognizing the effectiveness of Real-Estate Investing

Few home runs: Your likely returns from real estate won’t approach the home runs that the most accomplished entrepreneurs achieve in the business world.

Upfront operating profit challenges: Unless you make a large down payment, your monthly operating profit may be small or nonexistent in the early years of rental property ownership. During soft periods in the local economy, rents may rise more slowly than your expenses or even fall. That’s why you must ensure that you can weather financially
tough times. In the worst cases, we’ve seen rental property owners lose both their investment property and their homes.

Ups and downs:

You’re not going to earn an 8 to 10 percent return every year. Although you have the potential for significant profits, owning real estate isn’t like owning a printing press at the U.S. Treasury. Like stocks
and other types of ownership investments, real estate goes through down as well as up periods. Most people who make money investing in real estate do so because they invest and hold property over many years.

Relatively high transaction costs:

If you buy a property and then want out a year or two later. You may find that even though it has appreciated in value, much (if not all) of your profit has been wiped away by the high transaction costs. Typically, the costs of buying and selling which include real estate agent commissions, loan fees, title insurance, and other closing costs amount to about 15 percent of the purchase price of a property. So, although you may be elated if your property appreciates 15 percent in value in short order, you may not be so thrilled to realize that if you sell the property, you may not have any greater return than if you had stashed your money in a lowly bank account.

Recognizing the effectiveness of Real-Estate Investing

Tax implications:

Last, but not least, when you make a profit on your real estate investment, the federal and state governments are waiting with open hands for their share. We highlight ways to improve your after-tax returns. As we stress more than once, the profit you have left after Uncle Sam takes his bite (not your pretax income) is all that really matters.

These drawbacks shouldn’t keep you from exploring real estate investing as an option; rather, they simply reinforce the need to really know what you’re getting into with this type of investing and whether it’s a good match for you. The rest of this chapter takes you deeper into an assessment of real estate as an investment as well as introspection about your goals, interests, and abilities.