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Other Investments:

Businesses and Real Estate

I would feel a little funny writing a page on investing without commenting on these other forms of investing. Paper investments (cash, bonds, stocks) are only one type of investment. They are the main type for most Americans, but it's possible to become fabulously wealthy in our country without ever owning a stock or bond. While collectibles, precious metals, and a few other things could be included here, the "big two" other investments that many in our country find immensely profitable are businesses and real estate. What they have in common is that they require a lot of knowledge and effort to succeed. If you're willing to put in the time required, it's possible to make more money with a business or real estate than paper investments allow. I don't know nearly as much about this subject as I do about more traditional investments, so I encourage you to seek out other sources of information if you think this is your thing.

Most businesses fail. That said, if you found a business, and it grows, it is usually a highly profitable venture for you. If you think you have a great idea, and could make it in this field, go for it (but have a backup plan if it doesn't work out). Nolo press has some great books and information on the legal aspects of starting a business.

Real estate can also be quite profitable, particularly if you can find and finance properties that will yield a positive cash flow (with rent paying the mortgage and all other expenses, with some left over as your profit). With enough education and effort, this can be a lucrative field to get into. Part of the attraction of real estate is that you don't need to buy properties outright, having instead the option of using OPM (Other People's Money). Your down payment (which lets you own a property and claim all tax advantages and appreciation) is rarely even a majority of the cost of the property, with down payments of 5% or so being relatively common. That has the effect of magnifying your cash-on-cash return if you know what you're doing.

That said, don't be fooled by escalating real estate prices into thinking that you're rich because you live in a big expensive home. Your home is not an investment. An investment is something that provides you with a source of income. So unless your house has the odd habit of writing you checks every month, don't include that in your mental assessment of your investment portfolio. While some people may be content downsizing upon retirement, most of us are going to continue living in our homes, and the "value" in them is something we may never see. If you'd like to learn more about real estate investing from one of the best resources available, check out the book Investing in Real Estate by Andrew McLean and Gary Eldred.