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Old 09-28-2005, 12:49 PM
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Default Profit Angles in Real Estate Investing: Pyramiding, Cash-Flow, Flips, Speculation, Subdivision, Development The FREE Online Resource Center for Beginning R.E.

This is one of more than 1,200 pages of articles, guides, forms, tools and
other resources available at the premier & FREE online resource center
designed for beginning and novice real estate investors.

Profit Angles in Real Estate Investing
What separates the one successful real estate investor from the many others
who lose money in real estate? Luck is often a factor. But for the serious,
long-term investor, the main factor is knowledge of the different ways to
make (and lose) money in any particular real estate project.

There are many ways to make money through real estate investing, and there
are probably many more that have not yet been designed or uncovered. This
section introduces the most common, as well as some less common,
profit-generating tactics available to real estate investors:
1.. Collateral (Pyramiding)
2.. Income stream (Cash Flow)
3.. Purchase and quick resale (Flips)
4.. Value appreciation (Speculating)
5.. Subdivision
6.. Development & Rehab
7.. Tax shelters

These tactics are discussed in more detail below. Not all tactics are
applicable to all properties. Properties that may work for some tactics wil=
not work for other approaches. On the flip side, tactics that may work for
some properties will not work with other properties. Some properties use
several tactics at once to generate profits for the investor. The choice of
tactics always depends on the subject property. The savvy investor will be
the one who can look at a piece of property and understand what its profit
potential is=97and which tactics will unlock that potential.

Actually, allow me to briefly correct myself. For the disciplined investor=
the choice of tactic and strategy will come first. The choice of property
will follow from the choice of tactic.

1. Collateral

A common, but often overlooked, reason for investing in real estate is to
build collateral for future investments. This is sometimes called
pyramiding. The value of real estate is widely recognized and accepted by
the market. Lenders are more lenient and generous to borrowers with real
estate holdings, because real estate is considered a highly useful and
liquid form of collateral.

For most Americans, the chief purpose of their only real estate holding is
to provide a home for their families. Our homes actually offer much more. I=
fact, Americans who own real estate have a multitude of opportunities
available to them that are not available to typical renters. The reason is
that real estate provides the owner with a collateral instrument=97even if =
property is mortgaged to the hilt, it can still be used as collateral for
more debt.

Real estate is a hard, illiquid asset. Nevertheless, the real estate market
has developed a mortgage financing system that does offer real estate some
liquidity. Through this dynamic mortgage industry, the hard asset of real
estate equity is no longer so illiquid. Mortgage loans are now more readily
available and can be obtained more quickly.

Such loans depend on the use the property as collateral or security for the
funds. Many commercial and small-business banks are often more willing to
lend money to borderline enterprises, if the business owners agree to use
their real estate properties as collateral for the loan.

Real estate can still be used as collateral for a loan, even if it has no
equity available. The value of real estate goes beyond its resale or
appraised value. Consider that the property's income stream is also a
valuable asset that is often included in the use of real estate as
collateral. For example, Fred takes out a mortgage loan on a piece of
farmland that he rents out to a local farmer; if he ever defaults, his
mortgage allows the bank to start collecting the rental income to offset th=
unpaid loan payments.

When property is being used for or considered as collateral, the investor's
primary responsibility will be maintaining that collateral's value. This
task obviously begins with basic maintenance. The property's value, however=
is affected more by its locale and location. The investor must therefore
stay attuned with developments in the neighborhood and market area. Crime
prevention, street improvements, zoning, new developments and tax issues
will all affect the property's value; and property investors must remain
aware, if not involved, to make sure that their properties are not hurt.

Indeed, most mortgage notes contain clauses that prohibit the property owne=
from committing waste, a legal term for actions or negligence by the owner
that decrease the property=92s value.

This may be a good time to introduce a real estate investment principle in
which I firmly believe. Never sell your real estate investment unless (1)
you absolutely must sell or (2) that sale is part of your bigger plan.

A properly maintained rental property can be a long-term cash cow. The
beautiful thing about real estate is that you don=92t have to sell it to ra=

Some people may counter that you would then have to repay the loan with
monthly payments and interest charges. That=92s not quite true. There are
payments, but you don=92t make them. Your property, or better yet your
business, makes those payments. This goes back to our earlier discussion of
approaching investment property as an investment and business. It is not
your home. Eventually, those loans will be paid off and you can start the
whole process all over again.

Meanwhile, you can use the tax-free loan proceeds to acquire even more real
estate investments. Yes, you heard that correctly. The loan proceeds are
tax-free: since they must be paid back, they cannot be considered income!

For the rest of this article, please go to: The FREE Online Resource Center for Beginning R.E.

This is one of more than 1,200 pages of articles, guides, forms, tools and
other resources available at the premier & FREE online resource center
designed for beginning and novice real estate investors.

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