The following is a guest post from Jim Driscoll, the founder and author of CriticalFinancial.com.
Ever looked at real estate investing as having a vested interest in a packaged commodity? Huh…a packaged commodity? How is that? Well, let’s look at real estate from a broad perspective.
Real estate is made up of an array of commodities each possessing their own intrinsic value; such as wood, concrete, petroleum products, copper, aluminum, and other building materials. The cool thing is they are packaged together into a single investment called real estate, which can be leveraged, depreciated, and purchased with borrowed money.
As if that’s not attractive enough, a fantastic tax benefit pushes real estate into the category of ‘best investment ever’! Is there a greater investment? If there is, I haven’t found it. What other investment allows you to invest potentially 5% or less of your capital, then lets you outsource your interest payments to a tenant.
Ahhh…the utopian investment. Nope, not so fast. Being a landlord is not for everyone. Those middle of the night phone calls to fix a stopped up toilet are enough to weed out a large swath of investors.
Real estate is not liquid. Many investors want to be able to rid themselves of their investment as soon as they think it looks to be hitting a downturn. For some folks though, ‘being liquid’ only creates temptation, and we know what temptation can cause us to do in the highly intense investment game.
After my experiences of losing money through investing in Wall Street products, I have now trained my mind to think of real estate as a forced savings account.
So, you are ready to take the rental real estate plunge and become a landlord. Awesome! I hope that you have come to that decision by desire (you really want to do this) and not by necessity (you were forced into it because your house wouldn’t sell). One of those scenarios (hint: the first one) generally works out better than the other.