PowerPoint PresentationReal Estate Investment TypesExamples of Direct Real Estate InvestmentsSlide 4Slide 5Real Estate Investments TypesExamples of Indirect Real Estate InvestmentsSlide 8Advantages of Real Estate InvestmentsDisadvantages of Real Estate InvestmentsInvesting in Precious MetalsSlide 12Investing in Precious StonesInvesting in CollectiblesCollectibles on the InternetReal Estate ActivitiesCollectiblesChapter 17Real Estate and Other Investment AlternativesReal Estate and Other Investment AlternativesMcGraw-Hill/IrwinCopyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.Real Estate Investment Types Direct.As the investor, you hold legal title to the property.Your home as an investment.•A place to live.•A major asset of most households.•Shelter income from taxes if you have a large mortgage - interest is deductible.•Possible hedge against inflation.Be aware of possible real estate “bubbles.” 17-2Examples of Direct Real Estate Investments•Your primary home.•A vacation home.Tax advantages depend on if the IRS views it as your second home or as a rental property.If you don’t rent it more than 14 days a year you can write off mortgage interest and property tax.Primary reason to own a vacation home is because you want to use it.17-3Examples of Direct Real Estate Investments•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.Most people buy land with the idea of subdividing the land.17-4(continued)Examples of Direct Real Estate Investments•Commercial property: land and buildings that produce lease or rental income. Examples are:Most common investment of this type is a duplex or small apartment building. It also includes hotels, office buildings, stores, and many other types of commercial establishments.Will income be greater than expenses?Tax deductions, such as depreciation and property taxes are limited to the amount of rental income you receive.•Passive activities and passive losses.17-5(continued)Real Estate Investments TypesIndirectReal estate syndicates. •A syndicate is a temporary association of individuals or firms organized to perform a specific task that takes a large amount of capital. Can be organized as a corporation, trust, or limited partnership.•Provide professional management and limited liability for its members, and diversification, if several properties are owned. •Losses from “passive” investments is not allowed to offset income from other sources.17-6Examples of Indirect Real Estate Investments•Real estate limited partnerships. A limited partnership has a general partner who has unlimited liability and sells participation units to the limited partners. The partner’s liability is limited to the extent of their initial investment, such as $10,000.17-7Examples of Indirect Real Estate InvestmentsReal estate investment trusts (REIT).•REITs are similar to a mutual fund or investment company and trade shares.•May buy properties and/or invest in first and second mortgages.•Equity REITs own properties; mortgage REITs own mortgages; hybrid REITS own both properties and mortgagesParticipation certificates.•A risk-proof real estate investment.•Equity investment in a pool of mortgages that have been purchased by one of several government agencies, such as Ginnie Mae and Freddie Mac.17-8(continued)Advantages of Real Estate Investments•A hedge against inflation.•Easy entry as a limited partner, such as investing $5,000 to own part of an apartment building.•Limited financial liability—limited partners.•No management concerns-REITs, mortgages. •Financial leverage.Use of borrowed funds for investment purposes, allows you to acquire a more expensive property than you could buy on your own.17-9Disadvantages of Real Estate Investments•Illiquidity.•Declining property values.•Lack of diversification.•Lack of a tax shelter for real estate syndicates.•Long depreciation period.•Management problems—direct real estate.17-10Investing in Precious Metals•A hedge against inflation.•A safe haven during political or economic upheaval.•Need a storage place.•Can be risky due to price variations.•Gold - lower interest rates often result in higher gold prices.Bouillon - bars and wafers.Gold bouillon coins.Gold stocks.17-11Investing in Precious Metals•Silver, platinum, palladium and rhodium.The last three are industrial catalysts, particularly in automobile production.Can be both a hedge against inflation and a safe haven during political or economic upheavals.17-12(continued)Investing in Precious Stones•Diamonds, sapphires, rubies, and emeralds can be a hedge against inflation.Appeal to investors because of their small size, ease of concealment, inflation hedge, and great durability.Risks include..•Not easily turned into cash.•Difficult to know if you are getting a good stone.•De Beer’s controls 85% of the world’s supply of rough diamonds.•Expect to buy at retail and sell at wholesale.17-13Investing in Collectibles•Includes rare coins, works of art, antiques, stamps, rare books, sports memorabilia, rugs, Chinese ceramics, paintings and other items that appeal to collectors and investors.•Can be a good investment and a hobby, or a financial disaster.•It’s “buyer beware.” Be careful of investment scams and forgeries.•Know dealer’s reputation and be wary of promises. Get a second opinion.•Use common sense & comparison shop.17-14Collectibles on the Internet•Easier to compare items.•Easier to find items.•The number of collectibles websites is growing very rapidly - eBay is the biggest auction site.•A disadvantage is that you can’t touch and feel the item and examine it for flaws.•There may also be some security risk since you don’t know who’s getting your cash or credit card.17-15Real Estate Activities•Go to www.vanguard.com and do some research on their REIT. How has this investment performed in the past?•Bring in real estate ads from the local newspaper. Find some prices on duplexes in your area. What kind of rents would you need to charge tenants in order to make money on properties like this?17-16Collectibles•Students in the class can share their experiences with collectibles. Has collecting been a good investment experience for you, or is it more of a