Rule Six Of Six: Don’t Be A Fool Or Be Fooled – Know Exactly What You Are Buying

Posted on 23. Aug, 2010 by in News

By Don R. Campbell, Cutting Edge Research Inc.

Do you TRULY know what you are buying?  Is it a real estate investment, or a security with a real estate foundation?  Many unsophisticated investors buy into projects believing that they are buying a real estate investment, when in fact they are simply pooling their money in a security (partnership, LP or share) that uses real estate as the base for the profits.  There is a massive difference between buying a security and a true real estate investment.  With a true real estate investment, you have some control. With a security, your control is very limited and your ability to get out when you need to sell can be very restricted.

The key identifier between the two is that with a true property investment you own the actual title (not a percentage). You can move in, rent it, or sell when you want.  This is the true definition of a real estate investment. Whenever there are restrictions that limit your ability, it adds to your future risk.  That is not saying that they are all bad, it is just that you have to factor that in when you are investing.  What is your exit strategy?

If you do not have control you may get stuck with a dead investment.  If you have control, in worst case scenarios, you can sell it on the open market to try and get some of your money back. 

Time Shares, for instance, are not real estate investments despite how they are dressed up. Control is limited and you do not own the property outright allowing you to move-in, rent it out or sell it.  Frequent vacationers can make timeshares work as pre-paid vacations, but don’t fool yourself into believing it is a real estate investment.

The true test of the quality of the investment is by looking at the secondary market opportunities to sell it into.  Try searching the internet for ‘time shares for sale’ to see the deep discounts owners are willing to sell at.  That should give you an indication of profitability and liquidity.

A key to any real estate deal being profitable is your ability to get out quickly and easily when you need to, so consider your exit options. Could you sell it on the open market or are your sales restricted by price, title, financing or other encumbrances?

CONCLUSION

By following these 6 Rules For Canadians Investing in US or Tropical Real Estate you can do well investing outside of Canada.  However, you MUST do your own homework in order to protect yourself.  This will ensure that you are going in with your eyes open as a true investor rather than a blind speculator (which makes you a promoter’s dream).  If you’re not willing to do the work and you blindly believe the promoter’s pitch, you might as well play the slot machines.

A promise of quick tropical riches is an alluring sales pitch.  Even more compelling is showing a potential investor how much cheaper you can buy a property today than what it was selling for 2 years ago.  Sophisticated investors understand that cheap does not make a good investment.  Don’t get caught up in the dream. This is your and your family’s hard earned money.  Make the dream a reality by asking the tough questions. And in ALL cases, make sure you are visiting the area at least twice before you sign on the dotted line.

You can get engaged in the ongoing real estate discussions at www.myREINspace.com .  A great place to get your questions answered.

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