Should you invest in real estate? Yes, but at the right time and in the right place. In the past, a greater percentage of individual investors in real estate have probably made money than have investors in stocks, and that is saying a lot!

Most experts are completely convinced that every able-bodied citizen should work toward either owning a home, a savings account, or common stock. Two-thirds of American families report they own their own homes. The typical equity in a home back in 1984 was $40,000. Even most insurance companies have made more from their big real estate equity investments than they have from bond and stock investing. That is in part because real estate has been easier for most people to understand.

Home ownership has always been a goal of Americans. Their ability to obtain long-term borrowed money through mortgages and the like, with only a small down payment as equity, has created the leverage necessary for Americans to make large real estate investments possible.

Time and leverage have usually paid off. However, this has not always been true. People can and do lose money in real estate if:

1. They buy in an area that is slowly deteriorating or is not growing.

2. They buy at inflated prices after several boom years and just before severe economic setbacks in the economy or in the particular geographic area where they own real estate. This might occur if there are major industry layoffs or the closing of an aircraft or steel plant that is an important mainstay to a local area.

3. They get themselves personally overextended with real estate payments that are too high, and their source of income is reduced by the loss of a job or an increase in rental vacancies, if they own rental property.

4. They make a poor initial selection, the area deteriorates, or they're hit by fires, floods, tornadoes, or earthquakes.

Your own home is probably the first real estate investment you will make. Location is key here also. However, timing and financing are now becoming vital factors too. If you have to pay an inflated price plus a 10% mortgage, you will be up to your ears in payments. Your risk-reward ratio has to increase. If you use creative financing that could force you to refinance in three to five years, your risks materially increase because you don't know what loan conditions may be like in the future.

There will be many other forms of imaginative financing and these absolutely must be investigated very carefully because most of them could force you, the buyer, to assume greater risks or payments down the road. Remember, it is definitely possible to lose money in real estate or to lose your house if you can't under any and all future circumstances continually meet the payments.


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