Is Real Estate Out of Your League?
By Charles Hopkins
Published 04/21/2006 | Real Estate
Investing in real estate has gotten a lot of attention over the last few years. Unfortunately however, many people still consider this to be something for 'the big boys'. This kind of black-and-white thinking is stimulated by our beliefs, which in turn are largely fed by the media. In movies and TV shows the business of real estate is often associated with millionaires and even billionaires. Since most people don't fall into either one of these categories, it's easy for them to consider real estate to be something that's out of their league. They might say something like "I'm no Donald Trump, so I can't do it!". Have you ever heard anyone make a statement like that? Have you ever thought something along those lines yourself? Chances are your answer to either or both of these questions is "yes".
Let's take a look at the world around us to see if our assumptions about what it takes to be in real estate are correct. If you were to look at all the real estate around you, you would quickly find that the majority of properties are residential. Home owners are real estate investors and as you probably know, most home owners are not millionaires. Owning your own home can be a great first step for a number of reasons. Obviously, as the value of your house increases, so does your net worth. However the potential benefits don't end there. The appreciation of your house over time not only builds your net worth, but it can also give you a great opportunity for creating some leverage. By refinancing your home, you can put excess money in your hands that you can use to invest in other properties. This could be another residential property generating rental income, but you could also look at commercial real estate.
Many people tend to think about commercial real estate as shopping malls, skyscrapers and office buildings for multinational corporations. This is the picture that is communicated in the media. In reality, the second largest category of real estate consists of small to medium sized business properties; the corner shop grocery, the neighborhood hardware store and your local restaurant are just a few examples. The value of these properties doesn't usually run into the millions and many are owned by people that are not millionaires. Not yet anyway. However their investment, if managed properly, provides them with a steady annual return that puts them on the path to becoming a millionaire over time.
Of course refinancing your home to raise investment capital is not something you should do overnight without careful consideration of the consequences. Any investment brings a certain portion of risk with it and you should factor in these risks in your refinancing decision. What happens if interest rates go up? What impact would a decline in real estate prices have on your financial situation? Also, you should take notice of the tax laws in your country in regards to potential deductions and taxation of different investments. It's important to get good advice before entering into a project like this, so talk to someone that is knowledgeable in the area you wish to invest in.
Many real estate opportunities don't require millions to get started and make some money. You don't need to be a Donald Trump to be a successful real estate investor. What you do need is: some capital to get started, some homework on the real estate market in your area, some good advice from people who know what they're talking about, and most importantly the courage to take the first step. Even if you don't know everything, it's a good idea to just go out there and find out what you need to know. You will never know everything and you will probably learn more by doing. As long as you make sure that you manage your risks, you will find that there are some pretty good opportunities well within your league.