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Real estate investing
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 many gurus out there that contend that real estate is
a panacea where you cannot lose money.[citation needed] 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.
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.
The bulk of the world's assets are in real estate.
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
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.
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