Chapter 32: Real Estate and Other Investment Options

Real Estate

Investing in Real Estate

• Real estate is land and anything attached to it, such as buildings or natural resources.
• Buying a house is the most expensive purchase and major investment most people make in their lives.
• Residential property is property in which an individual or family lives.
  • Single-family homes, multi-unit housing, and manufactured homes are forms of residential property.
• The most popular residential property is the single-family house.
  • It is usually on its own lot with its own yard.
• Multi-unit houses are usually single buildings divided into various units, with a separate person or family living in each unit.
• A manufactured home is usually one of two types.
  • Prefabricated houses are partly assembled at a factory.
  • The other type is a mobile home.

Buying a Home

• Few people have enough money to pay for a house in full.
  • Most have to finance it with a home mortgage loan, or a long-term property loan.
  • To buy a house also requires a down payment, which is usually 20 percent.
• Homebuyers often obtain a real estate agent to help them find a home.
  • A real estate agent is a person licensed to arrange the buying and selling of homes and other types of real estate.
  • Real estate agents usually charge their fees to the seller and not the buyer.
• Several factors affect the value of a house, including its size, condition, quality, and location.
• The amount of equity you have in a home is very important.
  • Equity is the value of a piece of property less the amount still owed on the money borrowed to purchase it.

Income Property

• Another reason for buying real estate is to obtain income property, or property used to generate income.
  • They can collect rent or sell the property for a profit.
• Rental property is any type of dwelling unit or other property rented for a length of time
• Undeveloped property is unused land intended only for investment purposes.

Other Investment Options

Diversifying Your Investment Plan

• To diversify means to vary investments in order to spread risk or to expand.
  • A diversified investment plan (or portfolio) might include real estate, stocks, bonds, and commodities.
  • It could also include precious metals, gems, and collectibles.
• Many people invest their money in precious metals as a hedge against inflation.
  • A hedge is a means of protection or defense against loss.
• Precious metals include valuable ores such as silver, gold, and platinum.
  • The price of gold rises when people believe that war, political unrest, or inflation may be near.
• Precious gems (or gemstones) are rough mineral deposits (usually crystals) that are dug from the earth by miners and then cut and shaped into brilliant jewels.
  • These gems include diamonds, sapphires, rubies, and emeralds.
  • They appeal to investors because of their small size, beauty, ease of storage, durability, and potential as a protection against inflation.
• Some people like to “play the market” for commodities such as oil, corn, and coffee.
  • Through a commodities exchange, investors can buy contracts for quantities of a given commodity for delivery at a future date.

Investing in Collectibles

• Collectibles are items that appeal to collectors and investors.
  • They can include rare coins and books, works of art, antiques, and stamps.
• The Internet has made buying and selling collectibles efficient and convenient, and the number of Web sites for collectors has exploded.
  • Collecting on or off the Internet can be a satisfying hobby and a good investment.
  • Nevertheless, a wise collector must always be alert to schemes and scams.
• Fraud is the crime of obtaining money or some other benefit by deliberate deception
  • The safest way to steer clear of fraud is to learn everything you can about the items you collect and to buy and sell only with reputable dealers.