0 Business and Personal Finance Unit 3 Chapter 11 © 2007 Glencoe/McGraw-Hill

1 Section 11.1 Real Estate Investment Direct Real Estate Investments Real estate investments can be either direct or indirect. Direct investments include:  Single-family houses  Duplexes  Apartments  Land  Commercial property direct investment an investment in which the owner holds legal title to the property he or she has purchased

2 Business and Personal Finance Unit 3 Chapter 11 © 2007 Glencoe/McGraw-Hill Section 11.1 Real Estate Investment A Home as an Investment Home ownership is most Americans’ largest financial asset. Owning a home is a good investment because:  Home prices have risen steadily over the years.  Most homeowners have mortgages, which can provide certain tax benefits. Second homes, or vacation homes, also provide tax benefits.

3 Business and Personal Finance Unit 3 Chapter 11 © 2007 Glencoe/McGraw-Hill Section 11.1 Real Estate Investment Commercial Property Some examples of commercial property include:  Duplexes  Hotels  Office buildings  Stores Many investors start by purchasing a small commercial property. Then they buy larger properties as the equity in their original investment increases. commercial property land and buildings that produce rental income

4 Business and Personal Finance Unit 3 Chapter 11 © 2007 Glencoe/McGraw-Hill Section 11.1 Real Estate Investment Land While land investments often promise tremendous gains, they also pose enormous risks. For example, you might not be able to sell your property at a profit, or even at the price you paid for it, if:  Construction in general slows.  Business activity declines. Unlike an apartment building, land in urban areas usually does not produce any income.

5 Business and Personal Finance Unit 3 Chapter 11 © 2007 Glencoe/McGraw-Hill Section 11.1 Real Estate Investment Indirect Real Estate Investments If you want to invest in real estate but do not have enough money to purchase property on your own, you might want to consider an indirect investment. Indirect investments include:  Real estate syndicates  Real estate investment trusts  High-risk mortgages  Participation certificates indirect investment an investment in which a trustee is appointed to hold legal title to the property on behalf of an investor or group of investors

6 Business and Personal Finance Unit 3 Chapter 11 © 2007 Glencoe/McGraw-Hill Section 11.1 Real Estate Investment Real Estate Syndicates or Limited Partnerships A real estate syndicate invests in real estate. A syndicate may be organized as:  A corporation  A trust  A limited partnership A real estate syndicate offers you and the other partners a variety of benefits. syndicate a temporary association of individuals or business firms organized to perform a task that requires a large amount of funds

7 Business and Personal Finance Unit 3 Chapter 11 © 2007 Glencoe/McGraw-Hill Section 11.1 Real Estate Investment Participation Certificates If you are looking for a risk-free real estate investment, then participation certificates might be a good choice for you You can buy participation certificates from these federal agencies:  Government National Mortgage Association (Ginnie Mae)  Federal Home Loan Mortgage Corporation (Freddie Mac)  Federal National Mortgage Association (Fannie Mae)  Student Loan Marketing Association (Sallie Mae) participation certificate (PC) an investment in a group of mortgages that have been purchased by a government agency

8 Business and Personal Finance Unit 3 Chapter 11 © 2007 Glencoe/McGraw-Hill Section 11.1 Real Estate Investment Advantages of Real Estate Investments The advantages of certain types of real estate investments include:  Hedge against inflation  Easy entry into commercial property ownership  Limited financial responsibility  Financial leverage financial leverage the use of borrowed funds for direct investment purposes

9 Business and Personal Finance Unit 3 Chapter 11 © 2007 Glencoe/McGraw-Hill Section 11.1 Real Estate Investment Disadvantages of Real Estate Investments Some of the possible disadvantages to real estate investments include:  Illiquidity  Declining property values  Lack of diversification  Lack of a tax shelter  Management problems Property management can be a full-time job, and many investors are not willing to take on that much responsibility.

10 Business and Personal Finance Unit 3 Chapter 11 © 2007 Glencoe/McGraw-Hill Section 11.1 Real Estate Investment Investment Options If you decide that real estate investment is too risky or too complicated, you might consider other tangible investments, such as:  Gold and other precious metals  Gems  Collectibles However, these investments can also be risky.

11 Business and Personal Finance Unit 3 Chapter 11 © 2007 Glencoe/McGraw-Hill Section 11.2 Precious Metals, Gems, and Collectibles Gold Many people invest their money in precious metals as a hedge, or protection, against inflation. The price of gold rises in times of:  War  Political unrest  Inflation As international tensions ease or the political situation stabilizes, the price of gold falls. precious metals valuable ores such as gold, platinum, and silver

12 Business and Personal Finance Unit 3 Chapter 11 © 2007 Glencoe/McGraw-Hill Section 11.2 Precious Metals, Gems, and Collectibles Silver, Platinum, Palladium, and Rhodium Other precious metals that rise in value during times of political or economic trouble are:  Silver  Platinum  Palladium  Rhodium Remember that while stocks, bonds, and other interest-bearing investments are earning money for you, precious metals sit in vaults, earning nothing.

13 Business and Personal Finance Unit 3 Chapter 11 © 2007 Glencoe/McGraw-Hill Section 11.2 Precious Metals, Gems, and Collectibles Precious Gems Precious gems appeal to investors because of their:  Small size  Ease of storage  Great durability  Potential as a protection against inflation precious gems rough mineral deposits (usually crystals) that are dug from the earth by miners and then cut and shaped into brilliant jewels

14 Business and Personal Finance Unit 3 Chapter 11 © 2007 Glencoe/McGraw-Hill CROWN JEWELS Throughout history, precious gems have been associated with great royalty. Why do you think diamonds, rubies, and other precious stones fascinate people?

15 Business and Personal Finance Unit 3 Chapter 11 © 2007 Glencoe/McGraw-Hill Section 11.2 Precious Metals, Gems, and Collectibles Risks of Investing in Precious Gems Despite the attraction of precious metals and gems, the investment risks are sizeable. These risks include:  You cannot easily convert diamonds and other precious gems into cash.  You may have difficulty determining whether the gems you are purchasing are of high quality. The primary risk is the great fluctuation in prices of precious gems.

16 Business and Personal Finance Unit 3 Chapter 11 © 2007 Glencoe/McGraw-Hill Section 11.2 Precious Metals, Gems, and Collectibles Collectibles Collectibles are another type of investment. These items offer the knowledgeable collector or investor:  Pleasure  An opportunity for profit Many collectors have been surprised to discover that items they bought for their own enjoyment have increased greatly in value while they owned them. collectibles a type of investment that includes rare coins, works of art, antiques, stamps, rare books, comic books, sports memorabilia, rugs, ceramics, paintings, and other items that appeal to collectors and investors

17 Business and Personal Finance Unit 3 Chapter 11 © 2007 Glencoe/McGraw-Hill Section 11.2 Precious Metals, Gems, and Collectibles Collectibles on the Internet The Internet has made buying and selling collectibles efficient and convenient. As an online buyer or seller, you can easily:  Search for items to add to your collection.  Comparison shop.  Reach people all around the world. Some drawbacks of online buying include:  Being unable to examine objects for flaws or trademarks  The ever-present danger of fraud