Are real estate investments really beneficial? (tenants, income tax, condos, prices)

[Keegan]

My Regards to the community, I am working in a private firm and really want to secure my future by doing some investments as I can’t be so dependent on my current job forever for all my basic needs. . Can somebody help me, to make me decide that where should I invest my money to get long term profits?

[chet everett]

Too general a question. It is like asking "are bonds a good investment" without knowing WHAT KIND you are looking at. Some bonds are a huge gamble, others are probably too conservative to count on for retirement.

Same with real estate. Some kinds of real estate 'investing' is more like taking your money to a casino, other ways are so slow to grow that it is not appropriate to consider for most individuals. Don't forget that beside houses / apartments/ condos there is all kinds of real estate that is geared to retail, office, industrial, even health care facilities.

Residential real estate has some unique properties that make it somewhat appealing and a little more understandable for "little guys". First, a house (or apartment/condo) provides a basic need -- shelter. Everybody has to live SOMEPLACE and thus you are providing some utility for yourself and/or tenants.
Each time some one lives in an house or apartment they put some wear on it, but some work can "undo" that so you sort of "build in value" by doing this. It does not always work, but it is much more direct than you could ever hope to be by investing in any kind of financial asset.

There are a multitude of ways to get the government to help you in real estate. From the simple tax breaks to FHA / HUD programs to direct assistance from state and local agencies there is no better way to make your money work harder.

That said, there is RISK in anything and there is no way to totally account for that. Right now there are many many people that have lost REAL MONEY by needing to sell a house for less than it was worth when they originally purchased. That does not happen with a guaranteed product, like a CD from a FDIC insured bank or Savings Bonds from the US Government. Of course over the longer haul those 'investments' do not keep up with inflation.

The best suggestion I can give is research opportunities of all kinds while putting ASIDE some money from every pay check in a separate traditional account at a bank or credit union. Read some books by people like Terry Savage, Robert Bruss, Jane Bryant Quinn or most of the general interest stuff on Bob Brinker's lists. Track some prices of mutual funds, bonds, and real estate. Decide if you can "make sense" over a year or so of what seems to cause the prices to rise and fall. You won't always be right and you have to measure you own "risk tolerance" by how upset you become when various potential investments fall by some amounts. Most people advocate NOT having all your eggs in one basket and that is good advice. The trick is when you start small you may have to put MOST or your savings first into one thing or another, but do not allow that habit to continue -- force yourself to diversify.

Another key if/when you decide to put money into investments of any kind is have to decide on a continuing basis whether the reasons you put money into a thing are still valid. Does it make sense to continue to put more money in? Does it make sense to move money out /sell? What is a realistic amount for an asset to have gone up? What is your strategy if it goes down?

I have made some real estate part of my investments, but over time I have shifted away from this, that does not mean the same will be true for you. One of the things that has to be factored at some point is how 'active' you can be and how much your time is worth. Young people with lots of time can tackle projects that are time consuming and involve physical efforts a lot better than older folks...

[ntfeldman]

I agree with the other post that your question is very general and difficult to answer. But I will also tell you - it's much easier to "get it right" with real estate than it is with stocks and bonds or many many other types of investments, for a variety of reasons. This is a quick overview and is by no means comprehensive - you have a lot of reading and research to do before you get started in any type of investment. But you've made the first few critical steps - you're curious and you're reaching out for help/knowledge. Stay that course, meet those who have successfully achieved what you seek to do and learn everything you can. Read, read, read, research, research, research, and meet with the very best of the four most important advisers you need to accomplish your goals - a great lender, a great CPA, a great real estate attorney and a great real estate broker. Engender them with your confidence and if they've earned it, your trust. Their service will make all the difference in the end.

Real estate is unlike other investments in a variety of ways that help the values grow for you more steadily than other types of investments. They include:

1. Leverage
2. Depreciation
3. Inflation
4. Deductions

All investments involve risk and you should understand what those risks are before getting in. They also require that you be an informed investor. There's certainly no shortage of people who have invested in real estate and "lost it all" chasing a deal. But, if you buy at good to great values, have capital to carry you through down turns and don't sign yourself into loans that get out of control, then you will find the world of real estate investment to be very fruitful.

Leverage - the ability to borrow is one of the elements that distinguishes real estate from other investments. You can borrow on commercial assets typically 75% of the total value of the asset. So on a $1,000,000 property, you can use $750,000 of someone else's money. The best part of this is the growth that comes to the asset is on the entire value. 100% of the asset is increasing in value - but you've only had to come up with 25% of the purchase price, you get the growth value on the leveraged component as well. This helps your money AND their money work for you.

Depreciation - each year when you pay income taxes on the rental income from an investment property, you get to reduce those rents by a fractional value of the property, compliments of the Government. And there are ways to increase that benefit too.

Inflation - when you own an asset that climbs in value consistent with inflation you've got a "hedge". Inflation generally erodes the return rates of most investments but for real estate, it's actually your ally. As prices for everything go up, the amount you paid for the property stays static (in the terms of new dollars, it actually goes down) - as does the amount you borrowed (unless you refinance, which is a totally other consideration). So a property is based on current valuations and the time value of money is on your side. This is a big reason why location is an important component of real estate, the better the location, the higher the appreciation with inflation.

Deductions - your going to spend money to improve the asset, your going to spend money to manage it, your going to spend money to pay interest on the debt. Your going to get deductions for these expenses. Other investments don't require as much management, but all investments require time. You get to deduct the costs associated with the investment which helps you keep more of the income and subsequently generate profits.

The down sides to real estate are that it's illiquid (which doesn't always work against you), and the growth can be slow - compared to say the stock market where you can double your money quickly. But the good news is it also devalues slowly and generally you can see it coming if you're paying attention to the market and time your strategy to either protect your value or divest. You can also borrow against your equity in the property and the money you borrow is yours tax free (you don't pay taxes on borrowed money). So illiquid isn't always a problem.

The beauty is that you can control a lot of value with relatively little money - so long as the property "cash flows" you can grow a lot of wealth with limited risk in just a decade or so. Most people aren't patient enough, they want a quick win. Real estate is not a quick win, it's a slow, steady, sure win that grows momentum over time.

A lot of people start with single family homes. It's an ok place if you've got limited cash but the getting in and getting out costs are high, the risks are greater and the growth is slower - but it's a good starting point if you need one. You'll still need 25-30% down unless you find seller financing - but the prices are right.

Good luck to you and depending on what type of property you want to invest in, you are probably entering into a good time to buy.

[Annemieke Roell]

Depends on where you are. When asking these types of questions it would really help if the rest of us knew where you are located.

[Adieoz]

I saw a post once that said the truth...on these sites you get what you pay for.

Consult a professional with something as important as your future.

That being said I do think the previous posts were well done.