Types of Real Estate Ownership (Part 1: Investment Real Estate)
Today, tomorrow and Monday we will be concentrating on an interesting view of real estate ownership. The main focus will be a great article defining three types of real estate ownership written by Logan Flatt, CFA on PowerWealth.com. Today we will address the first type, which is investment real estate.
Investment real estate
An investment is something that repeatedly helps your cash flow go positive. It means that you get cash every month from your decision. An investment is a true asset that puts more money in your pocket than it drains out. Flatt explains it thus:
A bona fide real estate investment puts more cash in your pocket than it takes out, on a repeatable, consistent basis. As such, a cash flow negative investment property is really not much of an investment at all. If you continue to hold on to a cash flow negative investment property out of pride or any other emotional attachment to the property, you are not maintaining an investment; you are maintaining a hobby.
This means that you need to carefully evaluate an property you purchase for investment purposes. Are you renting it out? Does what you get each month cover your costs? In order for you to truly have investment real estate, then you need to be getting a little extra after costs. Otherwise you are moving in the wrong direction (cash flow negative) and the investment hasn’t turned out to be such a good one.
So, make sure that you carefully consider your options before committing to a investment real estate. Find out whether you can turn it into a true investment. And, if it turns out to be something that is losing you money each month, sell. You will still get the proceeds from the sale, and you can plow them into a cash positive investment that will actually bring you money.
Tomorrow, we will look at what Flatt has to say about speculative real estate, and how it differs from investment real estate.
Tags: real estate, investment real estate, home mortgage loan, speculative real estate,
types of real estate ownership, mortgage blog, mortgage loan payments
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