Financial Freedom: Can You Lose a Fortune in Real Estate?
You’ve seen the headlines:
Barratt American, one of San Diego County’s Leading Home Builders, Going Out of Business . . .
Alaska Real Estate: US Housing Slump Heads North . . .
All-Around Real Estate Slump Here to Stay in . . .
New Home Market Still In Deep Slump . . .
According to Forbes, last year the world had 1,125 billionaires. Today there are 793. Donald Trump lost nearly half of his net worth – a significant amount of that in real property.
If “The Donald” wasn’t savvy enough to avoid losses in real estate, will you be?
There are some significant advantages to investing in real estate. Now it’s time to talk about the disadvantages:
- If you want to see the big money, you need to make big investments. You can’t expect to invest $500 and become a millionaire in this lifetime.
- If you want to make the big money, you also need to expect a big time investment. You can work part time in the real estate business to supplement your monthly income, but this isn’t the path to financial freedom.
- You’ll usually need a significant amount of cash for down payments.
- You’ll need even more cash for the “care and feeding” of the property. For the duration of your ownership, you’ve got the cost of taxes, management, repairs, insurance and renovations.
- There is no guarantee of occupancy with rental properties.
- Management of rental properties is a great deal of work. You either do the work, or pay for someone to do the work.
- Your success in real estate is based largely on which part of the economic cycle you hit. You need to buy when property values are down, and then be able to hold on to them long enough for the values to rise. There is no reliable way to determine precisely where you are in the cycle.
As I said in my last post, there’s a fortune to be made in real estate – by the right person, at the right time, with the right resources. Jeff Greene did, and there are many others. But failure in this industry is very common and very costly – you can lose your money, your credit rating and your good name in a matter of months, and easily walk out of the deal with 5-figure or more debt on your shoulders.
So is real estate the right investment avenue for you? Maybe. But before you decide, please read on, as I discuss the pros and cons of other investment options.
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