Real Estate(RE) touches the lives of everyone on this planet, whether you rent or own a home or apartment, or invest in property you can make smarter choices regarding your real estate. Are you paying too much, does your home own you? Or do you own your home? Are you captive by the payments you need to make on your real estate? I mean seriously who is in charge….LOL…..the home or the one paying for the home.
One thing the great recession taught many people in the United States and elsewhere, is that owning too much property at the wrong time can put even the best planner on a collision course with bankruptcy. I knew a few people, who took on too many investment properties, and ended up loosing it all. Luckily, I was not one who took on too much leverage in mortgages, and so I didn’t get affected by the housing debacle of 2008. But with that said, many people did make bold and aggressive choices that essentially leveraged up both their appetite for risk and also their likelihood of loosing a lot of money. I felt bad for some, and less bad for others who owned dozens of homes, and took a huge share of risk. People got greedy.
Don’t worry though, here on this site we will demystify some of the ways that leverage in a home can get you into trouble, and also some ways that owning a home and having a mortgage is a great thing that can help a first time homeowner, or a young person wanting to make an investment in their future.
For the purpose of this article, when I refer to real estate in general, I am referring to all forms of real estate from renting, leasing, owning a home, or buying investment property. If I am speaking about a certain type of investing, then I will state so…Ok? Also, there are numerous pages linked below that can lead you to find more about your specific situation, and how to maximize what you spend on properties.
Personal Real Estate vs Investment Real Estate
I use the term personal real estate for discussions about owning a home, or renting, or leasing, you need to be proactive in the way that real estate can affect your wealth over time. Investment real estate, are investments into properties that you don’t live in, or investments of too much property and you lease out portions of it.
Personal Real Estate
All of us live somewhere, and we all must pay to live somewhere in the form of rent, home mortgage payments, or a lease. Even if you own the home entirely, you should still try to think of your home as an investment and an outflow of cash. If you rent or lease, this logic is simple in that you must pay the landlord monthly with a rent check. It is clear in this case to see that you are making a payment for your living space.
Investing in Real Estate
Over time, real estate investments typically yield or return about 5% return on average. This is the total return that you will get by investing into a home for example, and renting that home out to tenants. While this is slightly lower than the investment in the stock market on average over the past hundred years offers 8% annual return, it carries a different amount of risk of loss of your investment. Investing in real property, has much less risk in losing the entire investment and much less risk of the price of the investment decreasing. When compared to investing in stocks, the odds of loosing your entire investment in 1 day is much higher in the stock market than if you invest into a rental property or a commercial property. So, does this make investing in real estate better than investing in the stock market? Not exactly, or not for everybody. There are lots of ways that you can loose money in real estate, thereby decreasing your overall return(or yield) to be far below investing in the stock market.