REAL
ESTATE : PROPERTY : HOME
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.
Advantages
There are those 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 biggest factor in marketability of an investment is supply
and demand. The first big advantage is that it is an extremely expensive product.
Each sale you make generates more profit potential for this reason. Furthermore
, it is suggested by some real estate investing allows a strategy to combat
inflation. The argument being since real estate is a "hard" asset
, unlike stock , it is able to maintain its value against currency.
Another advantage to investment real estate is the power of financial leverage. Real estate investors commonly leverage properties with borrowed funds obtained through mortgage financing companies. The leveraged property can then be used to obtain a higher return on investment (ROI). Higher returns can be in the form of appreciation and monthly cash flow.Next, owning real estate rental property can offer tremendous tax benefits. Real estate tax benefits can be used to offset income taxes in the form of depreciation. The Internal Revenue Service (IRS) allows many different depreciation schedules for income producing property. In accord, IRS Publication 4492 allows qualified individuals to take a 50% bonus depreciation on income producing property in specific areas and parishes until 2008. However, most real estate can be depreciated over 27.5 years.
One 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 allows the beginner to learn to find and recognize value.Real
estate investors may also look to real estate investment companies to act as
a bird dog. Many times, real estate investment companies have turn key systems
to investing. Part of the turn key system includes out of state real estate
brokers, property managers, insurance carriers, and lenders. Some real estate
investment companies charge a fee for services, while others do not.
Disadvantages
Real estate is an illiquid investment that needs maintenance and taxes to be
paid. A balanced investment portfolio has some liquid assets that can be quickly
converted to cash to sustain the real estate when its returns are not sufficient
to pay its recurring costs.During a real estate boom, speculators can be prone
to make purchases without precalculating the costs involved in the purchase
and for the ongoing costs of a property. The real estate can then sometimes
work against them instead of for them, realizing a loss at resale.There is no
guarantee that values will maintain themselves as society changes; megatrends
can cause large scale changes. An example is the period from 1815 to 1914 in
the U.K., during which real estate values did not increase although the society
as a whole made massive economic progress.(1)
source (1) wikipedia