Real Estate Investments: Direct                            2 
      Your home – a.k.a. Principal residence
         As discussed in chapter 7, your home …
             Is the major asset of most households
             Has great tax advantages
             Is a good hedge against inflation
               • A home produces an after-inflation return 
                of about 2.5 percent a year  (San Diego?)
         But it is a home first, an investment second
             In my humble opinion… 
        Examples of                                                   3 
        Direct Real Estate Investments
       Vacation home
           Tax advantages depend on if the IRS views it as 
            rental property
       Rental property
           Whole course unto itself! (More later)
       Undeveloped land
           Can be tremendous gains but this type of 
            investment poses enormous risks
              All the money is riding on a single parcel of land
              Plus there is no cash flow and you still have to pay 
               the property taxes
              And there is often no guarantee that you will be able 
               to develop the land
    Real Estate Investments: Indirect                          4 
      Real estate syndicates or limited 
        partnerships
      Real Estate Investment Trusts
         Similar to mutual funds but they hold real estate 
           instead of stocks or bonds
         Examples: Shopping centers, malls, apts, etc.
      Equity Sharing
         You put up the down payment for someone else 
           and then share in the appreciation
      Low-income housing
         At first, it is primarily a tax credit or deduction
             But eventually becomes a real estate investment
    Investing in Commercial Property                                   5 
       Most common investment of this type is a 
         duplex or small apartment building
           Also includes hotels, office buildings, stores, and 
             many other types of commercial establishments
       Look for income to be greater than expenses
           “Duh!  Good advice, guys!”
           But do not be surprised if you are looking at 
             negative cash flow for several years
           Rule of Thumb: Price = 7 to 10 times Rent
               In San Diego?  Ha!  Ha!  Ha!  Ha!  Ha!
               Again, I think the South Bay is where the bargains 
               are if you are so inclined
      Investing in “Fixer-Uppers”                               6 
      Concentrate on smaller properties first
          Two to four units and live in one of them
      Look for low down payments and seller 
         financing of rundown properties
          Banks usually do not want to loan to distressed 
           properties, however…
      Banks are all too happy to finance a rundown 
         foreclosure on their books
      Stay away from property managers
          Nobody cares about your property as much as 
           you do (but there are always exceptions)