Friday, October 27, 2006

I will never quit learning!

Just when you think you have it all figured it out, someone changes the rules. It is a constant process to keep up with the IRS, constantly changing and it appears they can't even keep up with the rules themselves. This is why I attend as many tax type seminars as I can, and I did just that today.

Today's session was more about rental real estate and how to maximize one's rate of return. Most investors have their own way of looking at a property and determining if it is a good investment or not. But quite often, investors are really speculators, not investing at all. They think they have figured out the market, when in fact they are banking on bad information and have no idea how to calculate the true rate of return. This speculation type of investment is really saying that one is waiting for someone else to come along and pay more for the property than they did. This is just stupid.

I have seen many people (and have also done this myself) drive across town to save 2 cents on a gallon of gas, stock up on soda because it is 10 cents per can cheaper than last week, and not buy green beans because they are not on sale. But those same people throw away thousands of dollars because they do not use wise investing principals. It just does not make sense. Why do we worry about the pennies and yet ignore the big dollars that our investments could be costing us? Simple. Most don't understand how to calculate cap rate, return on equity, and even the net operating income. It is critical for an investor to know.

In upcoming blogs, I will discuss how to look at being an investor rather than a speculator. It could make the difference in showing a profit or losing your shirt.

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