| The fastest growing commodity in the United | | | | cost of the landlord plus a profit for the |
| States is real estate. In 2005, it increased | | | | owner. |
| in value by 12% compared to other goods and | | | | |
| services that increased by only 4.5%. With | | | | Sometimes an investor may choose to buy an |
| such a high return on their investment, many | | | | apartment building or condominium complex and |
| people are purchasing real estate instead of | | | | rent the individual units out. Here the |
| stocks and bonds. | | | | formula for determining the monthly rent |
| | | | should be the monthly cost of the loan |
| Some investors choose to invest in run down | | | | divided by the number of units for rent plus |
| properties. They buy for a low price and hope | | | | the monthly cost of maintaining the property |
| to sell for a higher price once the necessary | | | | plus the cost of a landlord plus a profit for |
| improvements to the house and yard are made. | | | | the owner. If any units are vacant, the owner |
| Many investors choose to do the repairs | | | | must make up the difference in the loan |
| themselves, saving on labor costs. Others | | | | payment owed that month. This can be quite |
| hire contractors to do the work. Either way, | | | | expensive if the units remain vacant over |
| it is expected that the cost of repairing the | | | | time or the number of vacant units grows in |
| home will increase its value. The new value | | | | number. |
| is anticipated to exceed the original cost | | | | |
| plus the cost of repairs. If the owner can | | | | There are times when the housing market has |
| rapidly sell the property, he/she can recoup | | | | slid. This is called the bubble effect. |
| their investment, make a profit and move on | | | | Prices go up until, at last, they burst like |
| to another real estate purchase. | | | | a bubble and begin to decline. This can be a |
| | | | serious problem if you have all your money |
| Other investors purchase properties that are | | | | tied up in real estate. If you were depending |
| vacant and require little repair to make them | | | | on your new property to earn enough equity to |
| marketable. These houses can be resold or | | | | make you a profit and the value of the |
| rented out. Here the owner has made the | | | | property fails to increase or decreases, you |
| decision that the investment will be | | | | may be in financial trouble. Make sure in |
| reimbursed over time. The monthly rent on the | | | | advance that you can make your monthly |
| property must exceed the owner's monthly | | | | payments. You should not depend entirely on |
| payment on the loan. In the case of property | | | | the equity to make your payments. Financial |
| rentals, the owner assumes responsibility for | | | | experts suggest that, if you don't have to |
| maintaining the property. He/she will act as | | | | sell the property and you can make the |
| the landlord, collect the monthly rent, make | | | | payments, don't sell. Wait it out and see if |
| any necessary repairs, and handle the | | | | property values rise again. |
| paperwork for obtaining tenants. If the owner | | | | |
| does not have the time to invest in being the | | | | Financial experts say that an informed |
| landlord, he/she can pay another person or | | | | consumer will know what is happening in the |
| real estate agency to act on his/her behalf. | | | | market place and be prepared for it. Instead |
| This saves the owner time and aggravation but | | | | of borrowing again to meet the downturn in |
| it costs money to pay the substitute landlord | | | | real estate, they recommend that you cut back |
| a salary. This has to be figured into the | | | | on your expenses where you can. Use the extra |
| rental price. Thus the monthly rent should be | | | | money to step up payments and reduce the |
| the monthly cost of the loan plus the monthly | | | | amount of the loan. |
| cost of maintaining the property plus the | | | | |