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Real Estate:

Obviously real estate differs in one sense from
other investments in that one can live in a
property one buys. So it serves a dual purpose,
and makes ownership that much more attractive
since you‘d be spending money for it in any case.

This first section deals with home ownership,
which is a direct form of investment as well. The
section below deals with RE investment in
general. Note: for related information on
mortgages, please see our
Mortgages section.

Home Ownership:
How to approach the current market:
the first
judgement you need to make is time perspective
relating to a purchase. If you are not planning to
live in a residence for at least five years, you
should probably not buy a home in this market.
You should rent a residence. Even if the market
were not so uncertain, buying a home with such
a short time frame entails financial risks. Unless
you are prepared for those risks, i.e., prepared
and able to lose money, you should not buy
under those conditions. Over the long term (10+
years), real estate has almost always shown an
increase in value. This is less likely over shorter
periods.

Next, you need to be clear about what your
needs and financial capacity are. One should not
buy more than one can afford. Most have
probably come to this conclusion given the
current market, although it’s always been true. A
good rule of thumb is that you should limit
yourself to a home whose value is three times
your income. Or less. This rule can vary
depending on interest rates. Higher interest rates
mean the preferred ratio should be even lower
than three.

The amount of your down payment will be
controlled by the loan program you enter, as well
as how much you can or want to put down on
your home. Generally speaking, the more you
can put down the better, as the smaller amount
loaned to you represents lower personal risk to
you. Many lenders will require you to put 10-20%
to make the loan at all, or to qualify for their
better terms (interest rate, fees).

If you have a choice you should put as much
down as you can, while keeping enough cash
aside for your non home related expenses,
including an emergency fund that contains six
months worth of living expenses. However, there
are certain programs (FHA, for example) where
the down payment is as low a 3 percent. Of
course this makes it easier for the average
homeowner to buy. There is nothing inherently
wrong with this as long as the purchaser can
comfortably afford the mortgage and other
payments.

An important point is to realize that your home,
as part of your investment portfolio, will likely
greatly outweigh the rest of your portfolio, at
least in the early stages. Given this it is important
to have as much equity in your home as
possible, and the lowest mortgage balance, to
help defray this risk. It's just as as important to
continue to contribute to the rest of your
investment program to help this balance.

Types of Real Estate: three of the most common
forms of home ownership available to you are:

Single family residences: these are normally free
standing one family unit homes, often with
additional land adjoining them. This is the most
common form of home ownership. While it
provides one with the most control and privacy,
it also involves the most expense, as the owner
is responsible for all the maintenance and care
alone, as well as the expense, including taxes,
etc.

Co-operatives (Co-ops): this is where the owner
actually owns shares in the corporation that
owns the development in which they live. Those
shares entitle them to the rights to their
apartment and related privileges. This is lower
cost that single family ownership since there are
savings found in the sharing of common space,
etc. It is also easier for the individual to mange
since they are not personally responsible for
maintenance, etc. These are paid through
common charges to all tenants. One often must
be approved by a board to buy into a co-op, and
must abide by their rules.

Condominiums: these are similar to co-ops
except here the individual does own the
individual apartment within the complex. This
provides one with more control, especially
relating to the resale of his/her apartment, as well
as other issues. The cost is often more than a co-
op but less than a single family home of similar
size and location.


Real Estate (non home ownership):

There are a few other ways to invest in Real
Estate: One can invest in Real Estate Investment
funds (REITs, for short). These are funds that
accumulate money from individual investors and
invest in RE related projects. These are a form of
mutual fund (see investments).

Another way to invest in RE is to invest directly
or indirectly in publicly traded construction
firms, homebuilders, or home furnishing
companies.  


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Real Estate
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Latest Articles:
Where is the real estate market going? It  
wasn't that long ago that it seemed the market
would never stop going up. Now it seems my
Special Housing Section 2011 report for
where the housing market is headed now.

Of course, there will be an end to this trend, it
is simply a question of when.

None of this changes the fundamental role that
real estate should play in your financial life.
Over the long run owning one’s home has
proven to be the cornerstone of financial
success. That still remains true. Of course, one
must realize the true risks, and the difference
between long term investment in real estate
and speculation. See below for a general
reference of real estate information.
Have Questions? Our consultants are available to help you with
any financial question. We can also provide in-depth consultation
concerning any financial issue facing you. We can help. Please
contact:
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