Why should I put money into real estate?

If you are thinking of beginning your new year by investing in real estate, first read William H. Pivar’s “Real Estate Investing From A to Z, Third Edition.” It is not a get-rich-quick book. Instead, it is a get rich soundly in real estate by understanding the investment basics book.

Pivar begins by explaining the primary reasons for investing in real estate and why property is usually far superior to alternative investments, such as the stock market. He is a big believer in using leverage (i.e. borrowing money) to control property, which is likely to appreciate in market value.

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“If you purchase real estate on which you owe $2 million and hold on to it for 15 years, you should be a millionaire. With only an average 3 percent inflation rate, within 15 years your equity for average purchases should give you your million-dollar equity,” the author explains.

Then the author proceeds to show why a small 10 percent cash down payment is more profitable than a 50 percent down payment, thanks to the magic of real estate leverage. “Real estate investments can buy themselves,” Pivar explains, meaning the tenants will provide the rent money to pay the mortgage payments and buy the property for the investor.

Although the author doesn’t overlook risks of investing in real estate, he shows why the safety of realty is far greater than alternatives. The author explains the negatives of real estate, such as illiquidity, personal liability, negative cash flow, and management. But then he explains how to overcome these potential realty investment drawbacks.

As an investor in real estate for over 35 years, I especially enjoyed Pivar’s review of the realty investment basics, some of which I had forgotten about in recent years. Especially valuable are his explanations of the many different types of realty investments, several of which are sure to appeal to every reader. Along the way, the author uses many actual examples, plus follow-ups to show what happened to the example investor’ properties recently.

An unexpected benefit is the book’ tax benefits section is up-to-date, including reference to the recent 2003 Tax Relief Act, which reduced the federal long term capital gain tax rate to a maximum of 15 percent, even lower for taxpayers in low tax brackets. Pivar devotes an entire chapter to explaining the investor benefits of tax-deferred exchanges.

As the book’ title indicates, Pivar includes virtually all the basics real estate investors need to know and remember. He includes creative financing techniques, which can be especially important to new “beginner” investors. The author even includes a personal example how he traded price verses terms when buying his new home and obtained $21,000 of upgrades from the builder at no extra cost.

Along the way to explaining virtually all the realty investment basic terms, Pivar includes sage advice how to use this information to avoid making mistakes. For example, he suggests staying away from investment in large homes converted to apartments, abandoned, unrepaired or fire-gutted buildings, and neighborhoods with lots of graffiti. The author also discusses how to handle potential negatives, such as asbestos, formaldehyde, lead, radon, toxic mold and even sick-building syndrome.

Chapter topics include “Why Real Estate?”; “Investment Alternatives”; “Taxation and Real Estate”; “Understanding Financing”; “Creative Financing”; “Partnerships, Syndicates, and Real Estate Investment Trusts”; “Locating Property”; “Foreclosures, IRS Sales and Tax Sales”; “Analyzing Property”; “Your Offer to Purchase”; “Subdividing–Smaller Can Be Better”; “Trading Up to Wealth”; “Optioning Your Way to Success”; “Special Situations”; “Managing Your Property”; and “Selling Your Property.”

You won’t find a better basic book that thoroughly explains the pros and cons of realty investing than this one. William Pivar shares his extensive realty knowledge in a lively manner filled with facts and real-life examples. On my scale of one to 10, this outstanding book rates a solid 10.

“Real Estate Investing From A to Z, Third Edition,” by William H. Pivar (McGraw-Hill, New York), 2004, $19.95, 288 pages; Available in stock or by special order at local bookstores, public libraries and www.amazon.com.