Retire Inspired by Chris Hogan

Author:Chris Hogan
Language: eng
Format: epub
Tags: BUSINESS & ECONOMICS / Personal Finance /Retirement Planning
Publisher: Ramsey Press
Published: 2015-12-23T18:42:21+00:00

Real Estate Assets

The fourth major asset class is real estate. These assets basically represent land or anything that is permanently fixed to it (houses, apartments, condos, office buildings, retail space, and so on). There are three broad categories in real estate: residential, commercial, and industrial.

Real estate investments are probably the most hands-on, time-consuming investments you could make. I tell people as a general rule to avoid real estate unless they have a real passion for it. We’ve all seen the talking heads on late-night television explaining how you need to add real estate to your portfolio, but the problem is that real estate is a huge responsibility—one that many investors simply aren’t ready for. But, if you’re interested in this as part of your overall investing plan, let’s at least look at some particulars you need to know.

First of all, you should only consider real estate once you have the cash on hand to buy the properties. That’s right: cash. You should never take out loans for a real estate investment. Why? We covered that in our debt chapter: a loan is a risk. If you take out a mortgage, you have introduced risk into your financial situation, and like I told you before, no matter what is going on with your job, your health, or your financial situation, that mortgage loan payment is going to knock on your door every month. Our goal as we move toward our retirement dream is to mitigate risk, right?

The second thing to think about when you are considering real estate is location. I had a client call me to talk about his portfolio. He was living in Indiana, but he had purchased several investment properties in California during a time when he had lived in Los Angeles. After he was transferred back to Indianapolis, he was no longer able to check up on those properties and deal with his renters. He was spending a ton of money on plane tickets to fly out there and resolve issues he was having. It was a big source of stress for him, and he was in a mess. I’ll tell you what I told my client: You don’t want to be a long-distance landlord. If you are, you will probably have to hire someone to handle that property for you, which will create another expense.

And, speaking of expenses, you need to remember that you are ultimately responsible for the upkeep and maintenance of the property. So, if the air conditioner goes out and you have some sweaty, irritable tenants, it’s your job to fix it immediately. That’s why I advise people to not only pay cash for real estate investments, but to also have a cash emergency fund set up specifically for those investments. That way, you always have the cash on hand to replace that air conditioner or water heater when—not if—it breaks. And, of course, you can’t forget to factor in the costs of property taxes, interest, and insurance.

The thing I am concerned about often when it comes to real estate investments is that they can tie you down financially.

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