Real Estate As a Tool - Article 3.

How to Invest in Real Estate

Many of us grew up thinking that we would get our education, learn a trade or skill or a profession, go to work for a stable employer, work our 35 - 45 years and then retire with a nice pension and with Social Security, able to travel some, able to have a place in Florida or Arizona and able to leave something for our kids. This idealized script is still available to some, but it is certainly not available to as many as we once believed.

Would you instill in your children today a belief in a retirement plan such as the one I just outlined? Probably not, eh?

If you still think this is the path to financial security, ask your neighbors who work for United Airlines or JCI or Phizer how it is working for them.

Instead, you are more likely to try to teach your children to fund their personal IRA or the employer-established 401k out of their own money since few can any longer reasonably expect a pension…and who among us is anticipating that we shall receive the same Social Security benefits as our parents?

In this new age of self-funded retirement planning, there are a couple other ways for us in the middle class to achieve financial independence. And they both involve real estate. In fact, for many of us, the keystone of financial independence later in life is our real estate 'portfolio".

The following discussion assumes certain conditions:

	That you have not nor do you expect to inherit significant wealth;
	That you would like to achieve financial independence - that place where you have "enough" to pay your bills and to cover emergencies, where no single mistake puts you in bankruptcy, and where you re not financially dependent on any other person or event or job;
	That you want to plan for financial independence sooner rather than later.

The first real estate investment we make is in our house - and this should really be viewed as an investment rather than as a purchase of a house because it is cute or next to where Mom lives. You may be fortunate enough at the first house purchase to get the house that will be the home all of your adult life, but this is rare indeed. Instead, you should expect to move at least a couple of times before you move into your "last" house. In fact, it is not wise financial planning to remain so long in the house you could afford when you were 22, for this just ain't gonna be the house that will appreciate the most and gain you the most profit.

The key here, if we want to follow the proven script, is to buy the most house we can afford, leverage the purchase by mortgaging to 80%, refinance if and when rates decline, and then move into the next biggest house we can afford as our family grows or our finances allow. We keep doing this until it is time to downsize, then we take our profits tax-free and enjoy the financial benefits of having wisely owned real estate.

The second way to use real estate to fund our financial independence is to buy investment property - a rental, or vacant land we might be able to sell later, or - and this is the best option - the real estate on which we run our business. This is golden because we can have the business pay us rent, we get to take full tax advantage of real estate ownership and rental - AND the property enhances the value of our business when it comes time to sell and retire.

Believe me, it works, but only if this is the path you wish to follow. It is not for everybody - some never want to move; others would rather pay off the mortgage than use leverage. And some still get those nice pensions and think that Social Security will be there for them.