As law students, we are trained to identify the legal risks of a given scenario and then advise our clients of those risks. That is the essence of lawyering.
As a transaction lawyer, because we can recognize the potential for misconduct within a transaction, we have a fiduciary duty to protect our client’s interests in the transaction by structuring it in a way to optimally minimize such risks. Our three duties, then, are to:
Identify the nature and scope of any perceived risks that can disrupt the transaction.
Reduce the probability of loss (i.e., transaction costs, opportunity costs, out-of-pocket costs, or sunk costs) from those identifiable risks.
Deflect, to the extent most possible, the costs of inalienable risks.
Put another way, our goals are to protect our client’s interest (identify, reduce, deflect) & facilitate the completion of their desired transactional interest.
Source: Rick Daley, Real Estate Development Law, West Publishing (2011)
Here’s 5 Advantages:
- High rate of return, typically better than stocks or bonds;
- Tax shelter (depreciation, 1031 exchanges, and capital gains exemptions);
- Hedge against inflation;
- The power of leverage: making money with OPM;
Here’s 5 Disadvantages:
- Illiquid (not a quick cash option);
- Local market risk (casualty from storms, changes in jobs or government regulations);
- Requires expert knowledge (contractors, engineers, attorneys, banks, realtors, title insurance);
- Asset management expenses, and
- Risks (on-site, local market, regional, national, and international.
The tv shows make real estate investing look easy and glamorous, the reality of it is – it is not easy or glamorous.
Yes, you can make good money if you do it under the right conditions and you should own real estate, especially if you are currently renting.
You’re better off building equity and taking advantage of deducting the tax interest payments from your taxable income, than paying someone else’s mortgage off (rent).
In conclusion, with a decent plan of action, using OPM, you could fund your retirement lifestyle far better than relying on interest from your own savings and depending on social security.
Go, buy some real estate!