Real Estate Investing - An Honest Way to Make Money
For some reason, people who work hard and make a good living are seen as evil. The truth of the matter is people who make a lot of money often start out broke and end up providing jobs for those who need them. Real estate investors are probably the most maligned of all successful people but in reality, real estate investing is difficult and honest work.
Perhaps you remember a commercial on TV from several years ago, where someone proclaimed, he made money the old-fashioned way, he earned it. The implication here is people no longer earn money. Only people in maybe, the 1930s or perhaps the 1940s, made money honestly.
The further implication is people of yesterday were more honest, harder working, and therefore, just better people than the people of today. On top of this belief, there are also those amongst us who seem to believe just because you are making money, you are a crook. Of course, none of this is at all true.
When you run a business, you employ people and help them put food on the table. You are also investing in capital assets that tend to help grow the economy. Except in some very rare cases, the more money one makes, the more he helps grow the economy.
Making Money is an Equal Opportunity Business
In America, everyone has an opportunity to get rich and real estate investing is one method many good honest folks have used to become so, and sometimes, very much so.
Don't think for a minute real estate investing is dishonest just because it is so potentially lucrative. It is not dishonest in any way. In fact, real estate investing is hard work!
Real Estate Investing is Also Speculation
There is a very high earning potential in real estate investing because real estate investing is speculation. When someone puts money in a savings account in a bank, he/she will receive a low interest rate in return. This is because this person has done the safest thing he or she could do with his/her money.
There is no speculation in putting money in the bank. While the return a savings account brings may not be a high yielding one, it is a sure thing. You absolutely know in advance what this return will be.
When someone buys a solid, well-established stock, it is unlikely he/she will receive a great return over a long period of time, but the return will probably be better than the return a savings account would render. This is because there is some doubt this investment will make any money at all, or at least, it may take a long time to yield a fair return. In other words, there is some speculation involved when you buy a stock.
Real estate investing is much riskier than buying a blue chip stock or putting money in a savings account. This is why the returns can be so remarkable; there is a lot of speculation in real estate investing.
Great Returns and Great Risk Because of Leverage
How remarkable can the return on a real estate investment be? If you were to put a 20% down payment on a $200,000 dollar property and finance the remainder, or 80% of the price of the property, you would then be in a leveraged position where you would be controlling $200,000 with the $40,000 you have invested.
So, if the price of the property shot up 20% in one year, your return would be 20% X $200,000, or $40,000! In other words, you would have made $40,000, less mortgage closing costs, on a $40,000 investment in one year. This is a return of 100%!
Not every real estate investment scenario turns out to be so rosy. For instance, if the price of the $200,000 property went down 10% in one year, its worth would now be $180,000. Since you have an 80%, or $160,000 mortgage on the property, you would now be left with just $20,000 equity in the property. So, you would have lost 50% of your money. This how it goes with leverage and real estate.
Real Estate Investing is More Than Just Luck
Real estate investors have to know the right time to buy and the best time to sell. They have to know a lot about mortgages and how to be a landlord or landlady. They have to know about home construction or be affiliated with someone who does know home construction.
Beyond all, a real estate investor has to be a true risk taker who is willing to take a loss every now and then. This is the attribute most people lack, but the successful real estate investor has. When most people take a loss, they give up, but the true real estate investor will find a way to keep in the game.
When a real estate investor hangs in there long enough, at some point he/she will start to realize 100% and even 200% yearly gains. Once, he/she does, this real estate investor will probably become very successful, and dare I say, rich and nobody will be the worse for it! The bottom line is; real estate investing is a very lucrative and very honest business.