Real Estate

One of the smartest investments you can make is to buy your own home. Not only will you get tax breaks, but over the years the prices of many homes have skyrocketed. (In some parts of the country, the price of real estate has gone up so high that it reminds people of what happened to the stock market after it peaked in 2000.) Owning a home is usually cheaper than renting, it allows you to build long-term wealth the old-fashioned way, and, most important, it feels great to be a home-owner.

The biggest negative of owning a home is that real estate is an illiquid investment (meaning that you can't sell it quickly, as you can a stock or mutual fund). The other downside is that you are required to make monthly mortgage payments. If for some reason you fall behind with your payments, the bank can attempt to take over your home. Also, when you own a home, you have to pay property taxes, homeowner's insurance, and interest on the loan. Even with these drawbacks, owning a home is a worthy financial goal, although it's not for everyone. (For example, renting is simpler and more convenient for some people. In addition, you could use the money you aren't spending on the house to invest in the stock market.)

Many people use real estate as an investment. This includes buying a residential property, such as a single-family home, condominium, or townhouse. If all goes according to plan, you can turn around and sell it for a higher price or rent it out. As with investing in the stock market, you never want to buy real estate until you have done extensive research.

An alternative to buying real estate is to invest in a REIT, a publicly traded company whose stock can be bought and sold on one of the stock exchanges. These companies purchase and manage various real estate properties. If you don't want to take the time to buy stocks in these companies, you can always buy REIT mutual funds.

Unlike real estate, the main advantage of REITs is their liquidity. In addition, you can enjoy the benefits of buying and selling real estate without having to do the work. Of course, there is the risk that the company or fund manager will make poor real estate investments, causing the REIT to go down in price.

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