|Real estate investing: Profitable but risky game
Real estate also includes a human equation. "You're not buying a bond," says Poorvu. What if tenants can't or won't pay? Or if they trash your property before you can get them to move?
Pat Vredevoogd is a real estate agent and an investor. She bought her first property to lease to her college student daughter and three friends. And while it was a great situation for both, "there were some issues," she says. "It's not Cinderella land."
First, it put pressure on her daughter to be the go-between for the tenants, the landlord and the neighbors, she says.
And in a community not accustomed to rentals, neighbors weren't always understanding. Each of the four girls had a boyfriend and sometimes there would be eight cars in front of the home, which would set off the neighbors. They "would call and say 'They're renting to more than you should. We're going to send the city out.'"
After her daughter and her friends graduated, she rented to a doctor and his wife. "The neighbors loved me then," Vredevoogd says with a laugh. Eventually, though, she got weary of the upkeep responsibilities and sold the house. A vice president with AJS Realty in Grand Rapids, Mich., she still has another home in Florida, which she rents for three months a year, and a resort condo in Colorado.
"I am a big fan of diversity in your wealth building portfolio, and real estate is a big piece of mine," says Vredevoogd, who also is the 2006 president elect of the National Association of Realtors.
But she finds that many potential investors change their minds once they crunch the numbers. "I make sure we sit down and talk about resale, school districts and rentability," she says. In her area of the country, the rental rate is down. "With interest rates the way they are," she says, "people can buy."
While Kiyosaki looks for properties that will support themselves, he also wants an escape route. One example: he owns a building of apartments that generate a monthly income. But he also knows that he could take them condo and sell each for almost $100,000 above the current value. So he has a contingency plan.
Kiyosaki makes a distinction between investing (when buyers improve the property, change the zoning or market it to produce a steady stream of actual income) and speculating (when buyers hang onto the home, hoping it will increase in value while making money only on paper).
"If you're betting on the price going up, you might as well bet on the Super Bowl," he says.
In real estate, today's plan might not work tomorrow, says Kiyosaki. "Your strategy has to change with the market. This is what people don't understand," he says.
Dana Dratch is a freelance writer based in Atlanta.