Profitting from rental properties

One strategy for making money investing in real estate is to buy a home or a condo and then rent it out. This is great if you have enough cash to buy the property outright. If you are not buying it outright and need to get a mortgage to do this it can still work but you won't be in profit until the mortgage is totally done. Many people did this in the 80's until the savings and loan crisis screwed up all their mortgages and lending companies went belly up. Many people lost most of their wealth when this happened.

Pooled Real Estate Investments

One type of a real estate investment is where you have a company that collects investment from a group of investors and pools those funds together to buy a piece of real estate. They typically pay a small % like 8% per year for say 5 years and then at the end of the 5 yrs they will sell the property and split the profits with the pool of investors usually around 50/50 or 60/40. There are quite a few of these companies out there. I know of one company in Canada who is buying up homes in the Phoenix area hoping that the housing market will recover in the next 5 yrs.

Why invest in real estate?

There are many reasons for people to invest in real estate. I could sit here and quote all the famous lines about how god isn't making anymore land blah blah - the reality is that real estate offers a tanglible asset. Tanglible assets with real liquid resale value are far lower risk than something that is intangible like a stock. With a lot of investments you are relying on the integirty and skillset of the management running the investment than you are the actual product/service they sell. Any good idea or product can be completely messed up by management. You also have issues of mismanagement and fraud etc. You can still encounter this type of situation if you are dealing with an investment firm that specializes in real estate they would still be capable of messing things up. In this case it is different than directly buying real estate yourself. In the following weeks I will discuss the pros and cons of both types of real estate investments.