McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. CHAPTER PLAYLIST SONG: “Puttin' on the Ritz”“Puttin' on the Ritz” from the Young Frankenstein Soundtrack Real Estate Investments

15-2 Learning Objectives LO 15-1 Understand the different types of real estate investments. LO 15-2 Contrast the benefits and drawbacks of owning rental property. LO 15-3 Understand how to grow a real estate portfolio through real estate investment trusts. LO 15-4 Evaluate the risk and returns involved in short-term real estate investments.

15-3 The Inside Look Real estate scheme with a toxic asset  NPR's Chana Joffe-Walt on Toxic Assets, Mortgage Scheme NPR's Chana Joffe-Walt on Toxic Assets, Mortgage Scheme

15-4 Housing Price Index

15-5 “The best investment on earth is earth.” ~ Louis J. Glickman Real estate: Land and permanent buildings on the land  Rental property  Houses, apartments, farm land, commercial property   Lease: A contract that stipulates the use and possession of the property for a specified time and fixed payments   To start investing in real estate, you could buy a duplex and rent out half and live in the other half 

15-6 Real Estate Investment Strategies Owning and renting Real Estate Investment Trusts (REITs)  Flipping properties  Buy an undervalued property   Sell it for a profit

15-7 Measuring Return on Investment (ROI) Return on investment ROI = [P t – (P o + C)]/P o  P t =  P o =  C = ROI real estate investment calculators on-line ROI real estate investment calculators on-line

15-8 Doing the Math

15-9 Advantages and Disadvantages of Rental Property

15-10 Areas to Manage in Being a Landlord (Figure 15.4)

15-11 Being a Landlord Tenant Screening  Budgeting Expenses  Taxes   Mortgage payment  Maintenance and Repairs  Advertising   Newspaper 

15-12 Being a Landlord Communication  Resolve Disputes Informally Home Checklist  Before a tenant moves in or out  Rules for Your Tenants   Guests Put Everything in Writing  Reduces disputes 

15-13 Shared Ownership Because of liability issues, diversity of skills, and lack of capital, you may want to add other people to your real estate investments  Share profits and losses  Provides limited liability  Passes income and losses to shareholders  Provides limited liability  Passes income and losses to members

15-14 Shared Ownership

15-15 Real Estate Investment Trust (REIT) Like a closed-end mutual fund Mortgage REITs invest in mortgage loans that finance properties  Do your homework   Talk to a professional   Be wary of scams

15-16 Avoiding Scams Research the history of the REIT Have an attorney review the paperwork

15-17 Flipping Real Estate Leverage is in your favor for a higher ROI

15-18 Flipping Real Estate Successful Steps    Fix up the property to add value   Get real estate license so you are the listing agent and you receive the commission on the sale 

Mistakes that Make Flipping a Flop What precautions do you need to heed if considering ‘flipping’ as an option to build wealth?

15-20 Learn LO 15-1 Understand the different types of real estate investments. LO 15-2 Contrast the benefits and drawbacks of owning rental property LO 15-3 Understand how to grow a real estate portfolio through real estate investment trusts. LO 15-4 Evaluate the risk and returns involved in short-term real estate investments.