This is the real estate issue so let’s consider it as a piece of the investment mix. It requires more active management than most of your other investments. Don’t overextend on a mortgage. A conservative approach is best. The economy and markets will cycle around and wash out those not prepared.
Most people think they’re buying a house when in fact, they’re buying the land and any “improvements” on it. Improvements might be a house (coincidence), a garage, a dock, etc. It might seem like I’m splitting hairs but improvements are temporary while the land is permanent and defined by the boundaries of the property.
There are many rights that come with land ownership. The right to occupy, the right to rent, the right to dig and all the water/mineral rights. The list goes on (subject to local laws). Property lines extend down to the center of the earth and up into the sky. Aircraft have the right to fly over so forget about charging a toll for passing through your airspace.
The first real estate investment for most of us is our home. Mortgages come with a variety of choices. The monthly payments for a 15 year loan are not twice that of a 30 year loan. If the higher payment is workable, it will save a ton of interest over time. Read the fine print. Avoid variable rates and balloon payments.
Beyond personal residence is income property and here the sky is the limit. For example, if the kids are off to college and you help with the rent, why not buy a large home near the school and have them rent out rooms? A valuable lesson in property management is one of many benefits. Homes in these areas are constantly bought and sold as students pass through and there are always renters looking for a room. When graduation finally comes after 10 years the home can be sold (maybe) for a profit. The one downside to investing in college properties is that college renters tend to be a little rough on the property so remember the three little pigs and buy something sturdy.
Another way to invest in real estate is the stock market. Specialized mutual funds, ETFs, REITs and others offer a way to benefit from a rising real estate market without having to manage it. Naturally, results will vary and the management still needs to be done but that’s all factored in and paid for before they produce results.
Real estate is a nice addition to any investment portfolio. Because of the complexities of ownership, do not cut corners. Insist on a lease, credit check, and a deposit. Always use professionals. Realtors, tax specialists and attorneys can help prevent headaches down the road.
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