Real Estate Investments CHAPTER PLAYLIST SONG: “Puttin' on the Ritz” from the Young Frankenstein Soundtrack
Learning Objectives • LO 15-1 Understand the different types of real estate investments. • LO 15-2 Contrast the benefits and drawbacks of owning rental property. • LO 15-3 Understand how to grow a real estate portfolio through real estate investment trusts. • LO 15-4 Evaluate the risk and returns involved in short-term real estate investments.
The Inside Look • Real estate scheme with a toxic asset • NPR's Chana Joffe-Walt on Toxic Assets, Mortgage Scheme
“The best investment on earth is earth.” ~ Louis J. Glickman • Real estate: Land and permanent buildings on the land • Rental property • Houses, apartments, farm land, commercial property • Lease: A contract that stipulates the use and possession of the property for a specified time and fixed payments • To start investing in real estate, you could buy a duplex and rent out half and live in the other half
Real Estate Investment Strategies • Owning and renting • Real Estate Investment Trusts (REITs) • Flipping properties • Buy an undervalued property • Sell it for a profit
Measuring Return on Investment (ROI) • Return on investment ROI = [Pt– (Po + C)]/Po • Pt = • Po = • C = • ROI real estate investment calculators on-line
Being a Landlord • Tenant Screening • Budgeting Expenses • Taxes • Mortgage payment • Maintenance and Repairs • Advertising • Newspaper
Being a Landlord • Communication • Resolve Disputes Informally • Home Checklist • Before a tenant moves in or out • Rules for Your Tenants • Guests • Put Everything in Writing • Reduces disputes
Shared Ownership • Because of liability issues, diversity of skills, and lack of capital, you may want to add other people to your real estate investments • Share profits and losses • Provides limited liability • Passes income and losses to shareholders • Provides limited liability • Passes income and losses to members
Real Estate Investment Trust (REIT) • Like a closed-end mutual fund • Mortgage REITs invest in mortgage loans that finance properties • Do your homework • Talk to a professional • Be wary of scams
Avoiding Scams • Research the history of the REIT • Have an attorney review the paperwork
Flipping Real Estate • Leverage is in your favor for a higher ROI
Flipping Real Estate • Successful Steps • Fix up the property to add value • Get real estate license so you are the listing agent and you receive the commission on the sale
10 Mistakes that Make Flipping a Flop • What precautions do you need to heed if considering ‘flipping’ as an option to build wealth?
Learn • LO 15-1 Understand the different types of real estate investments. • LO 15-2 Contrast the benefits and drawbacks of owning rental property • LO 15-3 Understand how to grow a real estate portfolio through real estate investment trusts. • LO 15-4 Evaluate the risk and returns involved in short-term real estate investments.