Author of the Rich Dad book series, Robert Kiyosaki, says his "Rich Dad" swore that investing is not "rocket science". He suggested it's just an issue of reasoning. But we all know that wisdom is not, in fact, terribly common.
Kiyosaki also says, the lowest levels of investors are individuals who simply haven't studied the process. They adopt the viewpoint that investing is either a scam or just too risky. Others leap before they look and end up suffering a loss.
The smarted opinion anyone can have concerning investing in real estate is just to educate yourself. If, in your haste to make money, you start investing without that education, you will be doing yourself a great disservice. Time is your most important resource and if you squander it, you will usually find that your money will be lost as well - money you have that you end up squandering, equity you could've saved if you'd just invested the time to figure out the techniques of successful investors.
"That is just fine," you might say. You presumably will agree that getting a good education is typically a good thing. At the end of the day, knowledge is power. "What training do I need?" may be your 1st question. Your 2nd is probably, "How do I get it?"
The very first skill you might want to study is some essential accounting, which is not as nebulous as it sounds. Accounting is the language of finance. If you're investing in a company or a piece of property or what have you, you will need to be willing to check up on it to see whether it will be a benefit (make you money) or a burden (cost you money). It looks like logic when you look at it, doesn't it? But in order to be able to establish these things, you will need to be able to evaluate your financial-statements.
There are four common types of financial statements: cash flow statements, income statements, balance sheets, and statements of changes in share-holder equity. The last is fairly self-explanatory, and addresses the difference between at 2 individual points in time. A shareholder's equity is it's total assets minus it's total expenses, basically the net worth of a company.
The cash flow statement is a form that specifies the cash needed to make a company operate, plus where that money came from. Wikipedia equates a corporation to a large kettle of liquid which captures more of the liquid and also has pipes running out of it - into the investor's pockets and others to whom the company is in debt. The cash flow statement attempts to explain the displacement of that liquid - or the flow of the money.
The earnings (or profit-and-loss statement) watches out for a businesses earnings and losses due to expenditures over a period of time, while a balance sheet gives a description the same thing for 1 single moment in time and presents your liabilities and assets.
It may seem quite straight-forward until you think about Kiyosaki's advice on telling your assets and liabilities apart. He said that your lending institution, for example, will declare your home as an asset. It sounds rational. After all, it is something you own, right? But as stated by Kiyosaki's rich dad's statement of liabilities and assets, your house is actually a liability. It's a liability because it will eventually cost you money in dues and updates. It undoubtedly isn't earning money for you, and up to the time it begins doing that (say, you move out and are able to charge enough rent to make a profit), then it is not an asset.
Not that the bank is lying to you outright. Your house is an asset on THEIR balance sheet because it is making money for them.
That's the type of thing you can decide for yourself and ascertain whether you are making or losing money on an investment, if you make the time to educate yourself education. Don't forget: Knowledge is POWER.
Alex Anderson Searches The Minnesota MLS listings To Find Moneymaking Minnesota Investment Real Estate. Get A Free Copy Of "The Investors' Rental Guide" At http://www.GreatInvestmentProperty.com
Article Source: http://EzineArticles.com/?expert=Alexandria_Anderson
Monday, January 7, 2008
Why Real Estate Is An Excellent Long-Term Investment
There are basically three main reasons land is an excellent long-term investment. If you've read our article entitled "The Rising Cost of Real Estate" you already understand the Law of Supply and Demand... the first reason. This Law states that the less of something there is, the more demand there is for it. Since they stopped making land a long time ago, and because the world population is constantly increasing, the demand for land increases daily.
The second reason is called Leverage. Leverage may be defined as doing more with less. Three thousand years ago, leverage was a very basic tool understood by all. The Caveman wants to move a huge rock, so he uses a long piece of wood, wedged under the large rock, and he leverages the wood across a smaller rock. He pulls down on the wooden stick, the enormous rock moves with ease. Moving the huge rock the old-fashioned way would have taken six or even ten men but it was accomplished by one man with leverage.
The same principle is true in real estate. A small example would be purchasing a piece of vacant land for $10,000. Rather than paying the full price in cash, you pay a small down payment and you pay small monthly payments. Let's say you pay $250 as a down payment. You have now "leveraged" yourself into a $10,000 investment, but you only had to pay $250. You now own a property worth over $10,000 but you've only invested $250.
An example on a larger scale would be buying a home. You could purchase a $150,000 home and perhaps you would only be required to pay a 3% down payment ($4,500). You've now "tied up" a piece of real estate worth $150,000, and you have only invested $4,500 of your own money.
No other area of investing offers such fantastic leveraging opportunities. Consider buying shares of stock. Can you imagine going to your local bank and saying to the banker "Hello... I'd like to buy $10,000 worth of stock. I've got $250. Would you loan me the other $9,750?" She would laugh you all the way to the parking lot. NO! Banks rarely loan money on stocks. And even when they do, they want you to put in half of the money, and they put in the other half. That's only 50% leverage. In real estate, in the $10,000 and $250 example, you have leveraged 97.5%!
The third reason land is a terrific long-term investment is market volatility. Also known as the "ups and downs" of the market. Unlike the stock market, bond market, futures market, commodities market and most other markets, real estate values do not jump around from day to day. Homes and land do not lose 93% of their value in an afternoon of rough trading. Real estate, homes and land are far more stable investments. This is one of the reasons that banks are always eager to lend you money to buy a home, but are never interested in loaning you money to buy stocks, bonds, etc... They know that real estate is a solid investment, and they know that real estate almost always goes up in value. They know their money will be safe.
You can get even more leverage by buying under the market value when you buy your investments. It is common sense really. You have heard it a thousand times. Buy low sell high. This is one of the reasons Land Auctions have become so popular. People get an honest chance at getting incredible wholesale prices on land. If you haven't been to a land auction yet, please attend. We think you will be pleasantly surprised at the amazing bargains available at online land auctions. For more information on land auctions, be sure to visit Auction Acres.
Marty Weishaar -
Marketing Director -
Auction Acres
Article Source: http://EzineArticles.com/?expert=Marty_S_Weishaar
The second reason is called Leverage. Leverage may be defined as doing more with less. Three thousand years ago, leverage was a very basic tool understood by all. The Caveman wants to move a huge rock, so he uses a long piece of wood, wedged under the large rock, and he leverages the wood across a smaller rock. He pulls down on the wooden stick, the enormous rock moves with ease. Moving the huge rock the old-fashioned way would have taken six or even ten men but it was accomplished by one man with leverage.
The same principle is true in real estate. A small example would be purchasing a piece of vacant land for $10,000. Rather than paying the full price in cash, you pay a small down payment and you pay small monthly payments. Let's say you pay $250 as a down payment. You have now "leveraged" yourself into a $10,000 investment, but you only had to pay $250. You now own a property worth over $10,000 but you've only invested $250.
An example on a larger scale would be buying a home. You could purchase a $150,000 home and perhaps you would only be required to pay a 3% down payment ($4,500). You've now "tied up" a piece of real estate worth $150,000, and you have only invested $4,500 of your own money.
No other area of investing offers such fantastic leveraging opportunities. Consider buying shares of stock. Can you imagine going to your local bank and saying to the banker "Hello... I'd like to buy $10,000 worth of stock. I've got $250. Would you loan me the other $9,750?" She would laugh you all the way to the parking lot. NO! Banks rarely loan money on stocks. And even when they do, they want you to put in half of the money, and they put in the other half. That's only 50% leverage. In real estate, in the $10,000 and $250 example, you have leveraged 97.5%!
The third reason land is a terrific long-term investment is market volatility. Also known as the "ups and downs" of the market. Unlike the stock market, bond market, futures market, commodities market and most other markets, real estate values do not jump around from day to day. Homes and land do not lose 93% of their value in an afternoon of rough trading. Real estate, homes and land are far more stable investments. This is one of the reasons that banks are always eager to lend you money to buy a home, but are never interested in loaning you money to buy stocks, bonds, etc... They know that real estate is a solid investment, and they know that real estate almost always goes up in value. They know their money will be safe.
You can get even more leverage by buying under the market value when you buy your investments. It is common sense really. You have heard it a thousand times. Buy low sell high. This is one of the reasons Land Auctions have become so popular. People get an honest chance at getting incredible wholesale prices on land. If you haven't been to a land auction yet, please attend. We think you will be pleasantly surprised at the amazing bargains available at online land auctions. For more information on land auctions, be sure to visit Auction Acres.
Marty Weishaar -
Marketing Director -
Auction Acres
Article Source: http://EzineArticles.com/?expert=Marty_S_Weishaar
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