Kenneth Himmler Guest Blog: Why invest in Real Estate?
This is the second post in a series of articles from NAI Capital guest blogger, Ken Himmler, CEO with Integrated Asset Management, LLC. In his series of articles, Ken discusses topics relating to real estate investments and estate taxes. NAI Capital brokers will have an opportunity to meet Ken at our company’s next Capital College meeting on Feb. 2nd, 2011.
by Guest Blogger – Ken Himmler, CEO, Integrated Asset Management, LLC
Think about why you’re investing in real estate
When thinking about whether to invest in real estate, the factors you should consider depend on what kind of purchase you’re considering and the reason you’re buying it. Real estate can help diversify an investment portfolio and serve as a hedge against inflation, but there are many ways to do that. Your reasons for buying will affect how you choose to invest in real estate. In turn, the form that your real estate investment takes will affect the factors you should consider in your purchase.
Here are some of the questions you’ll need to ask yourself:
Do you want to be an active or passive investor?
Investing in real estate can be as active or passive as you choose. Buying rental property and managing it yourself will involve time and effort unless you hire someone to manage it for you. If you’ve never been a landlord, be sure to talk with other landlords to get a sense of the potential rewards and pitfalls. Other real estate investments, such as REITs, exchange-traded funds, mutual funds, real estate limited partnerships, or raw land, demand less day-to-day involvement. If you’re investing simply to diversify an investment portfolio, those may satisfy your needs without the challenges of owning property.
However, bear in mind that the same factors that can influence the value of a direct real estate investment–the negative impact of a drop in real estate values generally, economic downturns, rising interest rates that affect the cost of obtaining a mortgage, changes in property taxes or zoning laws, demographic changes, natural disasters, and many other factors–can also have a significant negative effect on REITs, mutual funds and ETFs.
Are you investing for income, capital appreciation, personal use, or a combination?
Real estate investments can offer potential for all three, but there is often a tradeoff among them. For example, raw land may have development potential, but it likely will not provide any return until that potential is realized. You may be able to earn income from rental property that has the potential to increase in value over time, but your ability to use it yourself will be limited if you want to enjoy a rental’s tax benefits. Ranking your priorities can be useful.
Are you looking for a quick return or a long-term investment?
Real estate speculators have been known to earn high profits from buying distressed property, fixing it up, and reselling it at a profit, especially in a buyer’s market. However, the real estate market is notoriously cyclical. If you’re speculating, hoping for a quick return on your capital, the liquidity of a real estate investment will be important to you; so will making sure you don’t overpay to begin with. If you have a longer time frame, you may have a wider range of investing options.
Is real estate going to be a full-time business for you or a sideline?
Some real estate investors find that what they intended as a hobby or retirement diversion quickly becomes more than they can handle. Think about just how much time and capital you’re prepared to devote to your real estate investments, and how much of a cushion you have in case things don’t work out as you expected.
Are you investing for tax considerations?
Operating expenses for rental property can be tax-deductible if you don’t use the property yourself or use it only minimally, and you may also benefit from deductions for depreciation. Also, any profit from the sale of real estate generally is taxed not as ordinary income but at the lower rates for capital gains, and you may be able to use capital losses to offset capital gains. Other forms of real estate investment, such as REITs and ETFs, may have only limited value as tax shelters. Also, remember that tax laws can change. If tax considerations are your primary focus, be sure to consult your financial professional to see whether real estate is the most effective means of addressing your tax concerns and which type or types might be most appropriate.
Kenneth Himmler, Sr. is a Wealth Management Coach that focuses his efforts on working with individuals that value a higher quality of life above anything else. This allows him to work primarily with people that have similar values and goals, which makes for a very mutually satisfying and long-lasting relationship.
Ken offers a wide range of programs and services – from financial planning to ongoing wealth management. Ken specializes in coaching individuals, from retirees to entrepreneurs, and helping them to strive to obtain financial freedom and security. He acts as the quarterback giving his clients access to work with top attorneys, CPA’s, and money managers, putting together a plan that enables people to go from their accumulation stage to the distribution phase, better known as retirement. This allows many of his clients to strive to live an even higher quality of life into retirement than they had prior to retirement.
Along with being the CEO of IAM Wealth Management, Ken was the radio host of a live, syndicated program called, Live Rich & Stay Wealthy for ten years. He has also authored the financial column in four newspapers. In addition he also teaches financial courses at several colleges. He has been a professional public speaker now for over seventeen years, traveling nationally for very select organizations and institutions.
for more info, please visit: www.iamllc.biz
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