- advertisement -
Real estate investing: Profitable but risky game
Page | 1 | 2 | 3 |

Many times, investors who have one investment property tend to buy close to home and act as their own landlords, Guttentag says. "And if they are a handy person, that is certainly a big help.

- advertisement -

"The only pattern I've noticed is they go for three bedrooms or more," says Guttentag, also professor emeritus of finance at the Wharton School. "I don't think a lot of people want to invest in two-bedroom houses."

Real estate investing appeals to people across the age and ethnic spectrums, among them immigrant groups, young people in gentrified areas and people who have retired and are looking for something to do, says William Poorvu, co-author of "The Real Estate Game."

It's also accessible for a large segment of the population, says Poorvu, also a professor emeritus of real estate at Harvard Business School. "That's the point about real estate," he says. "The ease of entry for almost anybody makes it a very attractive investment medium."

The dark side of real estate
Like all assets, real estate has a down side. Buying a home is never as easy as picking up stocks or mutual funds.

Sklar admits he's already hit his share of speed bumps.

The first house he bought had four bedrooms and two baths. But the county appraisal records showed it had only two bedrooms and one bath. "It was a huge obstacle, and it was messing up the financing," he recalls. "I remember at the time we were totally stressed about it."

Another house almost didn't close because the finance company came in at the last moment with a much higher rate than promised. "They hadn't shopped it as an investment property," he says. "They had shopped it as a residential property."

Sklar quickly switched lenders and closed on time, "and it ended up being a better deal than the original," he says.

"You learn something with every deal," Sklar says. "You almost expect some sort of event to happen and learn not to worry about it."

Another challenge for investors: Real estate is not liquid.

"The problem, from an investment point of view, is these investments are lumpy," says Guttentag. "They have their money tied up in one asset. And a catastrophe could hurt them badly. The market could turn down in a neighborhood. They are not diversified."

And, like other assets, value is cyclical.

"My point of view is that the people getting into the market are late to the party," says Robert Kiyosaki, co-author of "Rich Dad, Poor Dad." "The most dangerous times are when times are good." Real estate, like a lot of other assets, tends to move in cycles of about 18 years, he says.

These days, Kiyosaki says, "I am a seller, not a buyer."

Buy at the wrong time, like the height of the market, and "you can be stuck for a very long time with a very low return," Poorvu says. Or if an area is decimated by an economic downturn or a big employer goes under, "you can be stuck for a long time with a mortgage" on a property you can't rent, he says.

Page | 1 | 2 | 3 |
Telling all about your house
Price your home at the top but not over the top
Get our real estate newsletter every week
How to lower your property taxes
Forged signature puts kibosh on home sale
Will mortgage assumption solve crisis?

Compare today's rates
30 yr fixed mtg 3.92%
15 yr fixed mtg 3.05%
5/1 ARM 3.02%
Rates may include points
  Calculate your monthly payment  
  How much house can you afford?  
  Fixed or adjustable rate: Which is right for you?  
Rev up your portfolio
with these tips and tricks.
- advertisement -
- advertisement -