RISK REDUCTION 411: Real Estate Builds WEALTH!

Real Estate does build wealth in so many ways. The easiest one to me is building equity in your own home. Sure, there are various times when houses depreciate instead of appreciating, but if you can hold on to it long enough, usually at least 5 years, then history shows you will make money. Your home becomes an automatic savings account. Renting, on the other hand, just makes landlords wealthier. Rent houses, bought for long term investment, work the same way. You let tenants make your payments – and yes, you have costs during vacancies and repairs between tenants – but the equity just builds up over time.

 

The RISK comes if you really didn’t have enough money in reserve to actually afford to make the investment in the first place. It takes careful examination beforehand to make sure you can afford to invest and to make sure you have enough reserve to carry your investment through possible expenses. Buying properties to remodel and re-sell is also a great way to generate wealth. The RISK in this case is again poor planning. Do you account for the materials and labor, yours or contractors, to remodel as well as the interest and carrying charges incurred until the property sells? What about the amount of tax you will pay on your capital gain?

There is also another RISK where we, as REALTOR/investors, must protect ourselves - keeping us above reproach. We must run a very fair market analysis and have the seller sign the CMA showing that they realize that they might get more for their property if they are willing to wait a bit longer. Some Sellers will want to do that. Others will sell to you anyway. With a signed CMA, you can prove to the Seller’s heirs that you did not take advantage of their relative. I would also have your manager look over your file to make sure you did not leave anything out in your excitement to invest. LAST RISK is NOT to INVEST if you have the excess capital to do so. To achieve wealth in real estate, you will have to take some risk and it will prove to be worth it.

Jan Fite Miller, EVP

214-446-2626

JanFiteMiller@judgefite.com