This is the second post in the Why I Like Real Estate series. If you haven’t already, check out Part I.

The concept and power of leverage is a simple one, yet it’s often misunderstood or not thought of when people think about real estate. I find this interesting since leverage is one of the most powerful reasons to invest in real estate.

All too often I’ve heard people say how real estate consistently under-performs the stock market, and we should therefore just invest in the stock market for long term gains. This may be true if you look at total gains, but leverage changes things.

Leverage basically means that you’re able to combine someone else’s money with your own money to buy an asset or invest in something. While it’s true that you can do this in the stock market with a margin account, most people who think real estate is too risky definitely would think a margin account is too risky.

By leveraging your money you’re able to multiply your gains, and this is why real estate can be (notice I said can be) much more profitable than other investments like the stock market. I suppose it would be best explained with an example:

Say that you put $10K into the stock market and you average an annual gain of 20%. Most people would say that this is quite an extraordinary rate of return. So, after 3 years your $10K would have grown to $17,280 which is outstanding.

Now let’s say that you put that same $10K as a 10% down payment on a rental property and finance the other 90% (this is the leverage part). We’ll also assume a rather conservative gain of 3% annually, well below what the stock market earned in our example. After three years, the property would then be worth $109,272 meaning that your $10K is now worth $19,272.

So as you can see, you’re money will still grow faster with an investment property appreciating at 3% than in the stock market at 20%. I understand that there are many other considerations, but you can’t dispute the power of leverage. This is why leverage is another one of the reasons that I like real estate.

For the last year or so real estate has been getting a bad rap. Prices have been declining in many markets (although not all), and the lending industry has been adopting some tougher standards. All of these things coupled with the constant negative media attention are telling people that real estate is a bad investment and too risky. I don’t really agree with all of this and still have many reasons to like real estate, which I’ll review here over a series of posts.

First of all, let me be clear up front that I’m not talking about flipping houses here. That is a valid form of real estate investing, but not the sort that I’m interested in. I’m more concerned with netting a positive cash flow than worrying about price fluctuations and capital gains. If a property is “self-sustaining”, you won’t have to worry about a drop in value or many other concerns I hear a lot.

I want to be in control.

Many people who want to avoid risk (and therefore real estate) are perfectly content to put their money into mutual funds for various reasons such as diversification and the like. When you do this though, you’re not only at the mercy of the fund manager (who is paid no matter what by the way), but you’re also at the mercy of the board of directors and the senior leadership of every company that the fund is invested in. Said more simply… you have no control over your investment except to be in or out.

With real estate, on the other hand, you’re in complete control. You determine how much you’re going to buy a piece of property for and what the terms of the sale will be. This usually happens through negotiations with the seller, but you’re in control of your negotiations. You also make the decisions about what to do with the property once you own it to suit your purposes. You decide to whom you’re going to rent/lease the place and for what price.

The point here is that everything is up to you. Even though you will most likely take out a mortgage you still own and control the whole thing. Where else can you only put down say 10% yet control all 100%? Having this sort of control over your investments is a huge advantage for me and something that I consider when investing in anything.

Before I can really talk about managing your free cash flow, you’ve got to know what it is and how you can acquire some. Wikipedia defines free cash flow as:

cash flow available for distribution among all the security holders of a company.

As I’ve talked about before, if you view your personal finances as a business, you’re the sole shareholder of your “company”. Therefore all of the free cash flow belongs to you.

Essentially, it is the money that is available to you from your income after you’ve paid all necessary expenses. If you’re budget is constantly tight, you’re not going to have much cash flow to manage and you’ll need to come up with ways to increase your free cash flow. This can be accomplished in one of two ways: by increasing your income or reducing your expenses. It sounds simple enough, but coming up with specific action plans for this can sometimes be difficult.

I’d also like to mention that I’ve seen far too many people concentrate solely on reducing their expenses. While this is good to do, it leaves out the other side of the equation which would help speed you on your way to your ultimate financial goals. Don’t forget to also spend some time trying to increase your income as you also focus on reducing your expenses.

Once you have managed to free up some cash flow, you’re going to need to know what you ought to do with it. This is where so many people get in trouble because their are so many choices and everyone is vying for a piece of what you’ve got. I break down all of these choices into four basic categories to simplify things:

• Pay down debt
• Save
• Invest
• Spend

These aren’t in any particular order, but I wouldn’t put Spend near the top of the list, although that’s what most people do with it. You’ll have to decide what is best for your personal situation to do with the money that’s available to you. Establishing an emergency fund may be high on the priority list for some, while others may look to invest because they’ve already got an emergency fund. You may choose to allocate your funds equally among all of the categories so that you’re making headway on all fronts. Whatever you do though, make sure that it’s a conscious decision with your goals in mind.

If it helps you, try to think of your finances like a business (like I mentioned earlier). By doing this you’ll want to increase and manage your free cash flow so that it provides the most growth and benefit to your overall finances. So take some time to figure out what your current cash flow looks like and how you can increase it so you can allocate it how you best see fit.

This last weekend has been really hectic. So busy that I didn’t even have time to put together a Weekend Edition. It was so busy because I had decided a week ago to take on a Do It Yourself project here at my house.

It started on Friday after work at about 5 o’clock. My wife and I pulled up all the carpet in the front room, which didn’t take too long until we got to the carpet pad underneath. Whoever put pad in went to town with the staple gun. We didn’t finish ripping everything out until about 10 o’clock the same evening, but at least it was all out for the next morning.

I started Saturday at about 7:30 a.m. pulling up a small section of linoleum. At this point everything was ready to start laying the new laminate flooring. Two of my friends from work came over to help which was fantastic because things went so much faster. We ended up getting almost the whole floor layed except for two very small hallways which shouldn’t take too much longer to finish. I’ll have a few pictures later once the project is finished, but the new floor looks really slick.

I will say that it was so nice to have people willing to come and help out. It makes such a huge difference to have multiple people able to work on multiple things at a time. I also had other people lend me some of their saws and other tools. I was very impressed again with the willingness of those people.

I’m also excited that it didn’t take as much flooring as I had originally anticipated. I ended up buying quite a bit more than what was needed so I will be able to take it back and get reimbursed. As you know, it’s always nice to get money coming back to you than going away. Hopefully the new floor will help with the sale of the house, since that’s more or less the intention of the whole project.

As you can tell if you’re a long time reader of Fiscal Musings, the site’s design is quite different. I’ve been waiting for about a week for the domain name to finally transfer over to my new hosting company so that I could install the new platform. There are still a few things to be worked out which I’ll be taking care of as quickly as possible. One of these things is the feed which is taking a while for me to switch over. When I transfered my other blog over to Wordpress, I had a similar issue with the feed, and I just had to wait overnight until Feedburner would let me change the original feed.

Hopefully I’ll have everything up and running shortly so I can get back to what’s really important, providing great content. As always, your comments and suggestions are welcome especially about the new site layout and design. Thanks for your patience going forward.

Update: The feed should now be working properly. Hopefully no one will have to resubscribe, but their may be some duplicate content as Feedburner works everything out.

There are all sorts of reasons that you may need to take out a loan. You may want to refinance all of those credit card balances that you have and combine them into one loan with one interest rate. Perhaps it’s time that you got a new vehicle because your current one is costing you more in repairs. You may also be looking to finally start that business that you’ve always wanted to get off the ground. If this is the case, you’re going to probably need to get a Business Loan in order to get started. At AmericaOneUnsecured.com you can find help in acquiring such a loan. You can get unsecured Business Loans meaning you don’t have to put up any collateral for it. The loan approval is based upon your current credit standing. You can get flexible terms on a variety of loans or you can get a revolving credit line. You can start their process online with their pre-qualification form or you can contact them by phone if you’d prefer. And you can use the loan you receive for any purpose you wish. If you’re looking for just such a loan, check out their website to find out more.

If you’ve read enough blogs, you’ve probably heard of feeds or RSS and seen a lot of those little orange logos like you see here on the top right. This post, however, is for all of you who may be new to the world of blogging and aren’t entirely sure what a blog feed is and why everyone is asking you to subscribe.

What exactly is an RSS feed?

RSS is a form of content syndication commonly known as Really Simple Syndication. This is also what is referred to as a feed or blog feed. The format is specified with XML which you can read more about at Wikipedia if you’re interested. The purpose of these feeds is so that you can keep up with your favorite sites automatically and all in one place by using a reader.

What exactly is a reader?

You’ll always be asked to subscribe to someone’s feed and to do this you need something that will read it. The software that accomplishes this is an aggregator or what’s commonly to referred to just as a feed reader. These aren’t anything complicated and most of them are free to use. In fact, you can use Google’s feed reader for free, and it’s already integrated with your existing Gmail account.

In order to subscribe to a website’s feed, you just need to click on the RSS logo or other feed link and then choose the reader that you have. It will then add the feed’s content to your reader along with everything else that you subscribe to. This way you’ll only need to go to one place to read all of your favorite websites instead of having to visit each site one by one. You can also have the feed delivered to your email address if you’d rather go that route.

Give it a shot.

So now that you know what all this feed talk is about, you ought to check out either Google’s feed reader or any other reader. They’re really easy to use and you can organize the different feeds into categories however you’d like. And this wouldn’t be much of a post if I didn’t put a plug in for my own feed that you can subscribe to above or at the link here at the bottom of this post. You’ll get to be reminded all the time to save and invest and learn to improve your finances.

Also, if you’ve got any other questions about the blogging arena, I’ll do my best to answer it or at least point you in the right direction to someone who can.