Property Can Be A Tricky Investment

In the 2000s, real estate investment made millionaires - and it created some financial quagmires, too. In the 2000s, the same basics apply, but more finesse is needed to turn a smart pound. In any case, there's more to real estate investment than an inflation hedge. Some of the activity today ties into retirement planning (like buying a six-unit apartment for income and living in one unit). But most investors are just out for cash profit.

Raw land holds the most opportunity - and the most risk. Pick the right spot (say a couple steps ahead of city expansion) and you can make a killing. You may pay £2,000 an acre a few miles out of town, and sell it in 10 years for £20,000. Or you can sell it for the same £2,000 - and be out of pocket for taxes at about 3% a year, plus closing costs and installments on a mortgage (if you can get one on a raw land deal).

Pinpointing property that's just a few years from development takes careful research on population, planning, traffic, zoning - plus a sound hunch. Too close to town and you're priced out of the market. Too far, and you will have a long wait for appreciation. And remember, in buying raw land you must figure what your money could earn elsewhere. One source of help: Income from leasing to someone such as a driving-range or filling-station operator, or farmer.

Apartments, stores, and other rental units are short on appreciation, but give you income, tax depreciation - and a little less gamble. You gain the most advantage from tax depreciation by buying land-plus-building with the building amounting to a major part of the value - say 75%. The depreciation factor is even more attractive if you pay the minimum down - maybe 25%. The 25% is possible this way: You get a 20-year 60% mortgage (currently at, perhaps, 8 '/2% and ask the seller to take an additional "purchase money" mortgage covering 15%. The fact that you are left with an effective down payment of 25% means you're getting top depreciation. This gives you big leverage possibilities. A 10% annual return (the range for well-managed property) translates into 15% if you have this kind of high depreciation and low down payment.

Aim to have about 75% of gross cover costs. For example, with a 12-apartment building, the rent from nine apartments should take care of management, maintenance, taxes, and mortgage, giving you a net income from three units.

Note: Cooperative and condominium apartments have a live-in feature that's getting popular. You buy two units, or a whole floor of a building, live in one and rent the rest. With a condominium you get a deed that provides reasonable freedom to rent or sell as you choose. With a co-op you get a proprietary lease (a cross between a long-term lease and a deed), and this may mean you need approval of an owners' committee before sub-letting.

In an ideal setup, each of two apartments might cost you £50,000, with monthly carrying charge (for maintenance, taxes, interest, mortgage) coming to £400, or £800 total. Your tax and interest deduction might amount to 30% to 40% of the £800, or £240 to £320 a month. Living in one unit and renting one for, say £600, gives you a cushion. But note: Condominium and co-op deals frequently surprise an owner with hidden costs (for insurance, heavy outlays for renovating lobbies etc.).

Real estate investment trusts (REITs) and syndications are - for the average investor - complex and risky. What you do, in effect, is buy a unit of ownership in, say, an office building. You pay from £5,000 to £20,000 or more for a unit, and hope for a payout. A 10% return is quite possible. So is losing your shirt. Success turns on the quality of management, its expertise and integrity. It's a case of thorough investigation on your

part in advance. REITs have had a bad name off and on since 2000, mostly because of weak management.

How to Make a Fortune Today - Starting from Scratch, by William Nickerson is a good website for a novice. But digging in the public library, and following the current real estate news closely for several months, must precede any serious plunge into investment real estate.


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An unexpected problem has arisen in some of the Caribbean islands, and it has clouded the real estate prospects in a serious way. Since 2011, radical political forces - and just plain native discontent - have brought about a series of murders and other crimes, apparently aimed at affluent UK. visitors. The UK. Virgin Islands have suffered, and there is evidence of extreme native discontent in Jamaica. Travel agents - and real estate agents, to be sure - will scoff at this; but some thoughtful investigation on your part is recommended. Puerto Rico and Mexico are two warm-weather countries where, to date, there has been little evidence of such troubles.

Got a yen for the good earth?Get A Good solicitor For The Closing, And Watch For Special Closing Fees.