Section 1.4

Real Estate

One need only flip the channel over to HGTV to realize that people can make extraordinary profits investing in real estate.  House “flipping” has been a craze for a while, and low-interest rates have drawn many hopeful entrepreneurs wanting to get rich quick.  Flipping isn’t the only way to make money in real estate, and it indeed isn’t the easiest.  As you will recall from earlier books in this series, buying a home for your family is not merely a purchase; it is a sizable investment that you should enter into with extreme caution and with an eye toward capital appreciation.

Because we considered the family home as an investment vehicle earlier, we will not cover those concepts again here.  In this section, we will discuss investments other than the family home as potential investments.  There are many types of real estate investments to choose from, and you will need to balance the risks and rewards as well as your time and skill constraints.

Real estate is a compelling investment space because the profits can be exceptional.  What the television shows don’t always make apparent is that the extreme profits that real estate strategies like flipping million dollar homes is that novices usually can’t afford to make bets that big, and even when they can afford it, they are doing so without understanding the probability of success.  The secret to making money is real estate is no secret at all:  You merely need to buy low and sell high.  The hard part is gaining the knowledge and experience that lets you accurately appraise homes and other real properties to determine what fair value is for the property.

When it comes to real estate, buying low means buying the property at a cost that is below fair value, or else improving the fair value at a cost that is less than the final value.  Selling high means getting a premium price for the property, or else charging (and getting) rents that are commensurate with a premium price.  Premium rents require a keen knowledge of the market and the use of successful marketing strategies.  Premium sale prices require excellent skills in sales, cooperative markets, good neighborhoods, good schools, and myriad other factors that require a vast amount of knowledge and experience.

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