1. AIM Why should we invest in real estate? DO NOW What are the advantages of investing in real estate? REAL ESTATE

2. What is it? The purchase, ownership, management, rental and/or sale of land or property for profit. REAL ESTATE INVESTING

3. Real Estate has been a popular investment for the ordinary investor. There are several reasons why: – Over the long term, it appreciates in value – It’s an investment you can live in – Mortgage interest is tax deductible – When you sell it, tax treatment is favorable – It serves as a hedge against inflation – It can produce income. How? – Even if its value goes down, you can rent it until the value recovers REAL ESTATE

4. What are the differences between stock investing and real estate investing? REAL ESTATE INVESTING

5. Mortgage interest is tax deductible – How this works: – I have a property worth $1,000,000 – The required down payment for a preferred mortgage rate is 20% – The mortgage is therefore 80% or $800,000 – At a 6% rate, my monthly payment is $4,796.40 – $4,000 of that payment is interest – If I make $500,000 per year, my tax bracket is about 45% – $4,000 x 0.45 = $1,800 – This makes my after tax monthly cost $2,996.40 REAL ESTATE

6.  When you sell it, tax treatment is favorable  If bought my house for $312,500  It is now worth $500,000  Federal Tax Law allows a married couple to use a $500,000 capital gains allowance on real estate purchased as a primary home ($250,000 each person)  If I sold my house today, I would realize a $237,500 gain – and pay no taxes on it!  If you had the same amount of gain on a stock investment, you would have to pay taxes REAL ESTATE

7.  It serves as a hedge against inflation  Inflation generally runs at 3%  If I have been living in my house since 2000  If I inflate the value of my home by the rate of inflation, the factor produced is 1.344  Multiply by the cost of my home:  $312,500 x 1.344 = $419,973  The current value ($500,000) is higher than just the rise in price from inflation  My return is $80,026/$312,500 = 25.6% REAL ESTATE

8. Income Generation  Let’s say that I decide to retire to Florida but want to keep my NY home as an investment. I can rent it.  Benefits:  Mortgage and taxes are partially or totally covered by rental income  Property taxes are still deductible, even though I don’t live there  Rental income increases my taxable income, but I can deduct the expenses of maintaining my “investment” property (including all repairs) REAL ESTATE

9.  Let’s change the circumstances  I decide to sell my investment property (Florida) instead of retiring there  I would normally pay the capital gain, because it is not my “primary residence”  But I can go and live there for two years, then sell it and use my $250,000 per person exemption  I pay no Federal Taxes on the transaction REAL ESTATE

10.  A family friend wants to sell you land on Mars  This could be a good idea if you want to move to another planet  He says, "What's the difference? Earth and Mars are both good planets, and Mars has a lot more space to keep your stuff!"

11. List the qualities you would desire in a piece of land on Mars or another planet such as:  What kind of view of Earth does it have? How big is the property? 1.Write down four additional questions 2.Write an ad that advertises this property. Must be at least 3 sentences. IS SPACE REAL ESTATE A GOOD INVESTMENT?

12.  How do you know whether a house is a good price or not?  Answer: you can check comparable sales – that is sales of similar houses in the neighborhood.  All real estate sales are recorded with the local county and are public records. You can look up the sale price of any property.  Let’s look up the price of your house and your neighbors! REAL ESTATE

13. Like a mutual fund - it holds a portfolio of investments (all related to Real Estate) A REIT receives special tax treatment Shares of REITS are sold like stocks, on an exchange, or through a Mutual Fund What might be included in a REIT? Shopping Malls/Strip Malls Office Buildings Housing Developments Land Retirement Communities REAL ESTATE INVESTMENT TRUSTS

14.  What might be included in a REIT?  Shopping Malls/Strip Malls  Office Buildings  Housing Developments  Land  Retirement Communities REAL ESTATE INVESTMENT TRUSTS