| Worst Real Estate Investments |
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The Worst Real Estate Investments
Not all real estate investments are good investments. The bad ones are
characterized by burdensome costs and problematic economic fundamentals.
Limited Partnerships:
You should avoid limited partnerships sold through brokers and financial
consultants. They are so burdened with high sales commissions and ongoing
management fees that deplete your investment that you can do better elsewhere.
The sales people that sell such investments stand to earn commissions of up to
10% or higher. Most partnership have very little incentive to control costs. In fact
they usually have a conflict of interest that encourages them to charge more to
enrich themselves.
Unlike mutual funds you can’t vote with your dollars. If the partnership is poorly run
and expensive, you’re stuck. You can’t access your money until the partnership is
liquidate, typically seven to ten years after you buy in to it.
Not all real estate investments are good investments. The bad ones are
characterized by burdensome costs and problematic economic fundamentals.
Limited Partnerships:
You should avoid limited partnerships sold through brokers and financial
consultants. They are so burdened with high sales commissions and ongoing
management fees that deplete your investment that you can do better elsewhere.
The sales people that sell such investments stand to earn commissions of up to
10% or higher. Most partnership have very little incentive to control costs. In fact
they usually have a conflict of interest that encourages them to charge more to
enrich themselves.
Unlike mutual funds you can’t vote with your dollars. If the partnership is poorly run
and expensive, you’re stuck. You can’t access your money until the partnership is
liquidate, typically seven to ten years after you buy in to it.
Timeshares:
Timeshares are another nearly certain way to loose money. With a timeshare you buy a week or two of ownership, or usage, of a particular unit
per year. If for example you pay $8000 for a week (in addition to ongoing maintenance fees) you’re paying an equivalent of more then $400,000
for the one full year unit, when a nearby similar regular unit may sell for less then halve that. The difference is absorbed in sales commissions and
overhead. People typically get enticed into buying a timeshare unit when they are already enjoying a very nice vacation someplace.
If you can’t live without a timeshare consider buying a used one. Many previous owners are willing to sell them for less then they paid. You can find
them for sale in classifieds or online.
Second homes:
The weekend getaway is sometimes a romantic notion, a place to escape, to get away from it all. When your cottage or home is not in use you may
be able to rent it out for a few weeks or months to help defray some of the costs.
If you can afford to own a second home or cottage more power to you, its your money and you should spend it however you would like. However,
please do not make the mistake of thinking that it should be an investment vehicle. Most second home owners seldom end up renting their property
because of the trouble and effort involved. As a result second home typically end up becoming money drains.
If you are not going to rent it most of the time, ask yourself if you can afford such a luxury. Owning a second home should be more of a
consumption, rather then an investment decision.
Timeshares are another nearly certain way to loose money. With a timeshare you buy a week or two of ownership, or usage, of a particular unit
per year. If for example you pay $8000 for a week (in addition to ongoing maintenance fees) you’re paying an equivalent of more then $400,000
for the one full year unit, when a nearby similar regular unit may sell for less then halve that. The difference is absorbed in sales commissions and
overhead. People typically get enticed into buying a timeshare unit when they are already enjoying a very nice vacation someplace.
If you can’t live without a timeshare consider buying a used one. Many previous owners are willing to sell them for less then they paid. You can find
them for sale in classifieds or online.
Second homes:
The weekend getaway is sometimes a romantic notion, a place to escape, to get away from it all. When your cottage or home is not in use you may
be able to rent it out for a few weeks or months to help defray some of the costs.
If you can afford to own a second home or cottage more power to you, its your money and you should spend it however you would like. However,
please do not make the mistake of thinking that it should be an investment vehicle. Most second home owners seldom end up renting their property
because of the trouble and effort involved. As a result second home typically end up becoming money drains.
If you are not going to rent it most of the time, ask yourself if you can afford such a luxury. Owning a second home should be more of a
consumption, rather then an investment decision.