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My job is to identify and analyze the risk that is in involved in your purchase of Real Estate as an investment. You will have to be the one to decide how much risk you are willing to take.
I'll preface by saying that I strongly believe Real Estate is more often than not the better alternative for investing your money - for the long term. To return to the fundamental ideas: The Real Estate cycle is commonly described as a "buyers market" or a seller's market." The buyers market indicates a surplus of supply and a downward price trend, favoring the purchaser. In a seller's market , the supply is short and demand is high (prices are forced upward by the competitive market situation).
To satisfy the recent demand, there are so many properties available and new construction/conversions that have leveled off the the market cycle. This leveling was temporary. Then at the point where the cycle had reached it's peak (arguably in early to mid 2006), the market cycle began to fall and will fall until demand exceeds supply.
While a fixer-upper may be available and a good deal out there; At this point in time, you may want to consider buying for the longer term and plan to keep for at least 5 years (or ride the cycle out). Keep in mind that Real Estate is "IDEAL' which is:
Income producing
Deprecation
Equity Building
Appreciation
Leveraging
If you were to purchase a property to hold and rent you can produce income in the rents that you receive. The cash flow could be positive, neutral or negative (hopefully not negative).
You will have greater tax flexibility in that you will be able to take a depreciation allowance on the improvement (house) itself. You'll also have the ability to deduct the operating costs from the gross income collected.
You will build equity in the property as you pay off your mortgage with the rental income produced. That equity can be utilized for many purposes (see leveraging below)
You will gain value over the long-run. Despite the localized market cycles, the overall national market has always appreciated and at greater numbers than most investment vehicles.
Leveraging is where you pick up much more risk, but much more reward.
(leverage: investing with borrowed money as a way to amplify potential gains (at the risk of greater losses) )
Potentially, you can buy multiple investment properties using no out of pocket money. Let's say you buy 123 Main Street, Anytown, USA and rent that out paying down the mortgage with the rent. You will build equity (the difference between the value and your mortgage debt). You can then take out your equity (TAX FREE!) and use it as a down payment on another property and you can continue to do this until you own an unlimited number of properties.
Here is another example. You have an investment property worth $300,000 and you owe $200,000m thus having $100,000 of equity. Your return on this property at this point is $5,000 per year. Now let's say you take out that $100,000 equity and buy 10 more properties (each producing $5,000 in profit) putting down $10,000 on each property. Your return is now $55,000 per year, instead of $5000/year and you didn't have to spend too much of your own money.
There are many advantages of owning investment properties, though some of the disadvantages are the time, effort and landlordism that you have to set forth.
Please contact me to discuss investing in Real Estate and how you can start today.......
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