Investing 101 Chapter 1
Frank Nicholson
Be sure to read the other investing articles.
Now on to the basics of investing in real estate …
MONEY STRATEGIES
There are numerous strategies to handle your money in today’s world. Most are referred to as “Investing.” Nearly everyone is familiar with the stock market and mutual funds as investments for small investors. Many people invest in treasury bonds, annuities, currencies, or certificates of deposit. Others may invest in gold, silver, antiques, or collectibles. But, as you will soon understand, real estate surpasses all of these investments in terms of returns to the investor.
Let’s examine some of the different philosophies of investing before we look at specific strategies.
Speculation
Speculation, in its simplest form, is buying something in the hopes that it will rise in value and can be sold for a profit at a later time.
Speculation carries with it the inherent risk that the investment will go down in value. Usually the greater the potential for gain, the greater the risk of loss. There is also the risk that the investment can’t be sold at all.
The investor should only speculate with funds that he or she could afford to lose.
Saving
When the motivation of the investor is not to accumulate wealth but to preserve assets, investors will put their money in a savings program. CDs, annuities, money market accounts, and similar accounts are examples of savings instruments.
Savings instruments involve very little risk of loss but have very little gain for the investor. Frequently the gain won’t even keep up with inflation. Often, elderly people will utilize savings instruments to preserve the assets they have acquired over their lifetime to pass on to their heirs.
The Real Estate investor will “save” money as he builds up cash for down payments.
Investing
What I consider a true investment is one that will provide the investor a return substantially above the inflation rate with little risk of losing the principal invested. In my opinion, real estate is a true investment. We will examine how investing in income-producing properties can earn the investor a substantial return on investment with very little risk.