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CHAPTER PLAYLI ST SONG:

“Pu t t i n' on the R i t z ” f rom the Young Fr an ken s te i n Soundt r ack

Real Estate Investments

15-2

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.

15-3

The Inside Look

Real estate scheme with a toxic asset NPR's Chana Joffe-Walt on Toxic Assets, Mortgage Sch

eme

15-4

Housing Price Index 1998-2010

15-5

“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

15-6

Real Estate Investment Strategies

Owning and rentingReal Estate Investment Trusts (REITs)

Flipping properties Buy an undervalued property Sell it for a profit

15-7

Measuring Return on Investment (ROI)

Return on investment ROI = [Pt – (Po + C)]/Po Pt = Po = C =

ROI real estate investment calculators on-line

15-8

Doing the Math

15-9

Advantages and Disadvantages of Rental Property

15-10

Areas to Manage in Being a Landlord(Figure 15.4)

15-11

Being a Landlord

Tenant Screening

Budgeting Expenses Taxes Mortgage payment

Maintenance and Repairs

Advertising Newspaper

15-12

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

15-13

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

15-14

Shared Ownership

15-15

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

15-16

Avoiding Scams

Research the history of the REIT

Have an attorney review the paperwork

15-17

Flipping Real Estate

Leverage is in your favor for a higher ROI

15-18

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

15-19

10 Mistakes that Make Flipping a Flop

What precautions do you need to heed if considering ‘flipping’ as an option to build wealth?

15-20

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.