So… You may ask yourself, why should you buy or invest in real estate in the First Place? Because it’s the IDEAL investment! Let’s take a moment to address the reasons why people should have investment real estate in the first place. The easiest answer is a well-known acronym that addresses the key benefits for all investment real estate. Put simply, Investment Real Estate is an IDEAL investment. The IDEAL stands for:• I – Income
• D – Depreciation
• E – Expenses
• A – Appreciation
• L – LeverageReal estate is the IDEAL investment compared to all others. I’ll explain each benefit in depth.The “I” in IDEAL stands for Income. (a.k.a. positive cash flow) Does it even generate income? Your investment property should be generating income from rents received each month. Of course, there will be months where you may experience a vacancy, but for the most part your investment will be producing an income. Be careful because many times beginning investors exaggerate their assumptions and don’t take into account all potential costs. The investor should know going into the purchase that the property will COST money each month (otherwise known as negative cash flow). This scenario, although not ideal, may be OK, only in specific instances that we will discuss later. It boils down to the risk tolerance and ability for the owner to fund and pay for a negative producing asset. In the boom years of real estate, prices were sky high and the rents didn’t increase proportionately with many residential real estate investment properties. Many naïve investors purchased properties with the assumption that the appreciation in prices would more than compensate for the fact that the high balance mortgage would be a significant negative impact on the funds each month. Be aware of this and do your best to forecast a positive cash flow scenario, so that you can actually realize the INCOME part of the IDEAL equation.Often times, it may require a higher down payment (therefore lesser amount being mortgaged) so that your cash flow is acceptable each month. Ideally, you eventually pay off the mortgage so there is no question that cash flow will be coming in each month, and substantially so. This ought to be a vital component to one’s retirement plan. Do this a few times and you won’t have to worry about money later on down the road, which is the main goal as well as the reward for taking the risk in purchasing investment property in the first place.The “D” in IDEAL Stands for Depreciation. With investment real estate, you are able to utilize its depreciation for your own tax benefit. What is depreciation anyway? It’s a non-cost accounting method to take into account the overall financial burden incurred through real estate investment. Look at this another way, when you buy a brand new car, the minute you drive off the lot, that car has depreciated in value. When it comes to your investment real estate property, the IRS allows you to deduct this amount yearly against your taxes. Please note: I am not a tax professional, so this is not meant to be a lesson in taxation policy or to be construed as tax advice.With that said, the depreciation of a real estate investment property is determined by the overall value of the structure of the property and the length of time (recovery period based on the property type-either residential or commercial). If you have ever gotten a property tax bill, they usually break your property’s assessed value into two categories: one for the value of the land, and the other for the value of the structure. Both of these values added up equals your total “basis” for property taxation. When it comes to depreciation, you can deduct against your taxes on the original base value of the structure only; the IRS doesn’t allow you to depreciate land value (because land is typically only APPRECIATING). Just like your new car driving off the lot, it’s the structure on the property that is getting less and less valuable every year as its effective age gets older and older. And you can use this to your tax advantage.The best example of the benefit regarding this concept is through depreciation, you can actually turn a property that creates a positive cash flow into one that shows a loss (on paper) when dealing with taxes and the IRS. And by doing so, that (paper) loss is deductible against your income for tax purposes. Therefore, it’s a great benefit for people that are specifically looking for a “tax-shelter” of sorts for their real estate investments.For example, and without getting too technical, assume that you are able to depreciate $15,000 a year from a $500,000 residential investment property that you own. Let’s say that you are cash-flowing $1,000 a month (meaning that after all expenses, you are net-positive $1000 each month), so you have $12,000 total annual income for the year from this property’s rental income. Although you took in $12,000, you can show through your accountancy with the depreciation of the investment real estate that you actually lost $3,000 on paper, which is used against any income taxes that you may owe. From the standpoint of IRS, this property realized a loss of $3,000 after the “expense” of the $15,000 depreciation amount was taken into account. Not only are there no taxes due on that rental income, you can utilize the paper loss of $3,000 against your other regular taxable income from your day-job. Investment property at higher price points will have proportionally higher tax-shelter qualities. Investors use this to their benefit in being able to deduct as much against their taxable amount owed each year through the benefit of depreciation with their underlying real estate investment.Although this is a vastly important benefit to owning investment real estate, the subject is not well understood. Because depreciation is a somewhat complicated tax subject, the above explanation was meant to be cursory in nature. When it comes to issues involving taxes and depreciation, make sure you have a tax professional that can advise you appropriately so you know where you stand.The “E” in IDEAL is for Expenses – Generally, all expenses incurred relating to the property are deductible when it comes to your investment property. The cost for utilities, the cost for insurance, the mortgage, and the interest and property taxes you pay. If you use a property manager or if you’re repairing or improving the property itself, all of this is deductible. Real estate investment comes with a lot of expenses, duties, and responsibilities to ensure the investment property itself performs to its highest capability. Because of this, contemporary tax law generally allows that all of these related expenses are deductible to the benefit of the investment real estate landowner. If you were to ever take a loss, or purposefully took a loss on a business investment or investment property, that loss (expense) can carry over for multiple years against your income taxes. For some people, this is an aggressive and technical strategy. Yet it’s another potential benefit of investment real estate.The “A” in IDEAL is for Appreciation – Appreciation means the growth of value of the underlying investment. It’s one of the main reasons that we invest in the first place, and it’s a powerful way to grow your net worth. Many homes in the city of San Francisco are several million dollars in today’s market, but back in the 1960s, the same property was worth about the cost of the car you are currently driving (probably even less!). Throughout the years, the area became more popular and the demand that ensued caused the real estate prices in the city to grow exponentially compared to where they were a few decades ago. People that were lucky enough to recognize this, or who were just in the right place at the right time and continued to live in their home have realized an investment return in the 1000′s of percent. Now that’s what appreciation is all about. What other investment can make you this kind of return without drastically increased risk? The best part about investment real estate is that someone is paying you to live in your property, paying off your mortgage, and creating an income (positive cash flow) to you each month along the way throughout your course of ownership.The “L” in IDEAL stands for Leverage – A lot of people refer to this as “OPM” (other people’s money). This is when you are using a small amount of your money to control a much more expensive asset. You are essentially leveraging your down payment and gaining control of an asset that you would normally not be able to purchase without the loan itself. Leverage is much more acceptable in the real estate world and inherently less risky than leverage in the stock world (where this is done through means of options or buying “on Margin”). Leverage is common in real estate. Otherwise, people would only buy property when they had 100% of the cash to do so. Over a third of all purchase transactions are all-cash transactions as our recovery continues. Still, about 2/3 of all purchases are done with some level of financing, so the majority of buyers in the market enjoy the power that leverage can offer when it comes to investment real estate.For example, if a real estate investor was to buy a house that costs $100,000 with 10% down payment, they are leveraging the remaining 90% through the use of the associated mortgage. Let’s say the local market improves by 20% over the next year, and therefore the actual property is now worth $120,000. When it comes to leverage, from the standpoint of this property, its value increased by 20%. But compared to the investor’s actual down payment (the “skin in the game”) of $10,000- this increase in property value of 20% really means the investor doubled their return on the investment actually made-also known as the “cash on cash” return. In this case, that is 200%-because the $10,000 is now responsible and entitled to a $20,000 increase in overall value and the overall potential profit.Although leverage is considered a benefit, like everything else, there can always be too much of a good thing. In 2007, when the real estate market took a turn for the worst, many investors were over-leveraged and fared the worst. They could not weather the storm of a correcting economy. Exercising caution with every investment made will help to ensure that you can purchase, retain, pay-off debt, and grow your wealth from the investment decisions made as opposed to being at the mercy and whim of the overall market fluctuations. Surely there will be future booms and busts as the past would dictate as we continue to move forward. More planning and preparing while building net worth will help prevent getting bruised and battered by the side effects of whatever market we find ourselves in.Many people think that investment real estate is only about cash flow and appreciation, but it’s so much more than that. As mentioned above, you can realize several benefits through each real estate investment property you purchase. The challenge is to maximize the benefits through every investment.Furthermore, the IDEAL acronym is not just a reminder of the benefits of investment real estate; it’s also here to serve as a guide for every investment property you will consider purchasing in the future. Any property you purchase should conform to all of the letters that represent the IDEAL acronym. The underlying property should have a good reason for not fitting all the guidelines. And in almost every case, if there is an investment you are considering that doesn’t hit all the guidelines, by most accounts you should probably PASS on it!Take for example a story of my own, regarding a property that I purchased early on in my real estate career. To this day, it’s the biggest investment mistake that I’ve made, and it’s precisely because I didn’t follow the IDEAL guidelines that you are reading and learning about now. I was naïve and my experience was not yet fully developed. The property I purchased was a vacant lot in a gated community development. The property already had an HOA (a monthly maintenance fee) because of the nice amenity facilities that were built for it, and in anticipation of would-be-built homes. There were high expectations for the future appreciation potential-but then the market turned for the worse as we headed into the great recession that lasted from 2007-2012. Can you see what parts of the IDEAL guidelines I missed on completely?Let’s start with “I”. The vacant lot made no income! Sometimes this can be acceptable, if the deal is something that cannot be missed. But for the most part this deal was nothing special. In all honesty, I’ve considered selling the trees that are currently on the vacant lot to the local wood mill for some actual income, or putting up a camping spot ad on the local Craigslist; but unfortunately the lumber isn’t worth enough and there are better spots to camp! My expectations and desire for price appreciation blocked the rational and logical questions that needed to be asked. So, when it came to the income aspect of the IDEAL guidelines for a real estate investment, I paid no attention to it. And I paid the price for my hubris. Furthermore, this investment failed to realize the benefit of depreciation as you cannot depreciate land! So, we are zero for two so far, with the IDEAL guideline to real estate investing. All I can do is hope the land appreciates to a point where it can be sold one day. Let’s call it an expensive learning lesson. You too will have these “learning lessons”; just try to have as few of them as possible and you will be better off.When it comes to making the most of your real estate investments, ALWAYS keep the IDEAL guideline in mind to make certain you are making a good decision and a solid investment.

The United Nations does it. Governments do it. Companies do it. Fund managers do it. Millions of ordinary working people – from business owners to factory workers – do it. Housewives do it. Even farmers and children do it.

‘It’ here is investing: the science and art of creating, protecting and enhancing your wealth in the financial markets. This article introduces some of the most important concerns in the world of investment.

Let’s start with your objectives. While clearly the goal is to make more money, there are 3 specific reasons institutions, professionals and retail investors (people like you and me) invest:

For Security, ie for protection against inflation or market crashes
For Income, ie to receive regular income from their investments
For Growth, ie for long-term growth in the value of their investments
Investments are generally structured to focus on one or other of these objectives, and investment professionals (such as fund managers) spend a lot of time balancing these competing objectives. With a little bit of education and time, you can do almost the same thing yourself.

One of the first questions to ask yourself is how much risk you’re comfortable with. To put it more plainly: how much money are you prepared to lose? Your risk tolerance level depends on your personality, experiences, number of dependents, age, level of financial knowledge and several other factors. Investment advisors measure your risk tolerance level so they can classify you by risk profile (eg, ‘Conservative’, ‘Moderate’, ‘Aggressive’) and recommend the appropriate investment portfolio (explained below).

However, understanding your personal risk tolerance level is necessary for you too, especially with something as important as your own money. Your investments should be a source of comfort, not pain. Nobody can guarantee you’ll make a profit; even the most sensible investment decisions can turn against you; there are always ‘good years’ and ‘bad years’. You may lose part or all of your investment so always invest only what you are prepared to lose.

At some point you’ll want to withdraw some or all of your investment funds. When is that point likely to be: in 1 year, 5 years, 10 years or 25 years? Clearly, you’ll want an investment that allows you to withdraw at least part of your funds at this point. Your investment timeframe – short-term, medium-term or long-term – will often determine what kinds of investments you can go for and what kinds of returns to expect.

All investments involve a degree of risk. One of the ‘golden rules’ of investing is that reward is related to risk: the higher the reward you want, the higher the risk you have to take. Different investments can come with very different levels of risk (and associated reward); it’s important that you appreciate the risks associated with any investment you’re planning to make. There’s no such thing as a risk-free investment, and your bank deposits are no exception. Firstly, while Singapore bank deposits are rightly considered very safe, banks in other countries have failed before and continue to fail. More importantly, in 2010 the highest interest rate on Singapore dollar deposits up to $10,000 was 0.375%, while the average inflation rate from Jan-Nov 2010 was 2.66%. You were losing money just by leaving your savings in the bank.

Today, there are many, many types of investments (‘asset classes’) available. Some – such as bank deposits, stocks (shares) and unit trusts – you’re already familiar with, but there are several others you should be aware of. Some of the most common ones:

Bank Deposits
Shares
Investment-Linked Product1
Unit Trusts2
ETFs3
Gold4
1 An Investment-Linked Product (ILP) is an insurance plan that combines protection and investment. ILPs main advantage is that they offer life insurance.

2 A Unit Trust is a pool of money professionally managed according to a specific, long-term management objective (eg, a unit trust may invest in well-known companies all over the world to try to provide a balance of high returns and diversification). The main advantage of unit trusts is that you don’t have to pay brokers’ commissions.

3 An ETF or Exchange-Traded Fund comes in many different forms: for example, there are equity ETFs that hold, or track the performance of, a basket of stocks (eg Singapore, emerging economies); commodity ETFs that hold, or track the price of, a single commodity or basket of commodities (eg Silver, metals); and currency ETFs that track a major currency or basket of currencies (eg Euro). ETFs offer two main advantages: they trade like shares (on stock exchanges such as the SGX) and typically come with very low management fees.

The main difference between ETFs and Unit Trusts is that ETFs are publicly-traded assets while Unit Trusts are privately-traded assets, meaning that you can buy and sell them yourself anytime during market hours.

4 ‘Gold’ here refers to gold bullion, certificates of ownership or gold savings accounts. However, note that you can invest in gold in many other ways, including gold ETFs, gold Unit Trusts; and shares in gold mining companies.

With the advent of the Internet and online brokers, there are so many investment alternatives available today that even a beginner investor with $5,000 to invest can find several investment options suited to her objectives, risk profile and timeframe.

Diversification basically means trying to reduce risk by making a variety of investments, ie investing your money in multiple companies, industries and countries (and as your financial knowledge and wealth grows, in different ‘asset classes’ – cash, stocks, ETFs, commodities such as gold and silver, etc). This collection of investments is termed your Investment Portfolio.

Some level of diversification is important because in times of crisis, similar investments tend to behave similarly. Two of the best examples in recent history are the Singapore stock market crashes of late-2008/early-2009, during the US ‘Subprime’ crisis, and 1997, during the ‘Asian Financial Crisis’, when the price of large numbers of stocks plunged. ‘Diversifying’ by investing in different stocks wouldn’t have helped you very much on these occasions.

The concept and power of compounding are best explained by example. Assume we have 3 investments: the first returns 0.25% a year; the second returns 5% a year; and the third returns 10% a year. For each investment, we compare 2 scenarios:

Without compounding, ie the annual interest is taken out of the account.
With compounding, ie the annual interest is left (re-invested) in the account.
Let’s look at the returns over 25 years for all 3 investments, assuming we start off with $10,000 in Year 0:

With 0.25% return a year, your investment will grow to $10,625 after 25 years without compounding; your investment becomes $10,644 after 25 years with compounding.

With 5% return a year, your investment will grow to $22,500 after 25 years without compounding; your investment becomes $33,864 after 25 years with compounding.

With 10% return a year, your investment will grow to $35,000 after 25 years without compounding; your investment becomes $108,347 after 25 years with compounding.
This shows the dramatic effects of both higher returns and compounding: 10% annual returns coupled with 25 years of compounding will return you more than 10 times your initial investment. And 10% returns are by no means unrealistic: educated investors who actively manage their portfolio themselves and practise diversification can achieve even higher returns, even with some losing years.

People of all ages and backgrounds need practical and customised guidance in developing their financial knowledge and skills in order to reach their financial goals. In this article we’ve tried to describe in simple terms some of the most important concepts and principles you need to understand on this journey.

So… You may ask yourself, why should you buy or invest in real estate in the First Place? Because it’s the IDEAL investment! Let’s take a moment to address the reasons why people should have investment real estate in the first place. The easiest answer is a well-known acronym that addresses the key benefits for all investment real estate. Put simply, Investment Real Estate is an IDEAL investment. The IDEAL stands for:

• I – Income
• D – Depreciation
• E – Expenses
• A – Appreciation
• L – Leverage

Real estate is the IDEAL investment compared to all others. I’ll explain each benefit in depth.

The “I” in IDEAL stands for Income. (a.k.a. positive cash flow) Does it even generate income? Your investment property should be generating income from rents received each month. Of course, there will be months where you may experience a vacancy, but for the most part your investment will be producing an income. Be careful because many times beginning investors exaggerate their assumptions and don’t take into account all potential costs. The investor should know going into the purchase that the property will COST money each month (otherwise known as negative cash flow). This scenario, although not ideal, may be OK, only in specific instances that we will discuss later. It boils down to the risk tolerance and ability for the owner to fund and pay for a negative producing asset. In the boom years of real estate, prices were sky high and the rents didn’t increase proportionately with many residential real estate investment properties. Many naïve investors purchased properties with the assumption that the appreciation in prices would more than compensate for the fact that the high balance mortgage would be a significant negative impact on the funds each month. Be aware of this and do your best to forecast a positive cash flow scenario, so that you can actually realize the INCOME part of the IDEAL equation.

Often times, it may require a higher down payment (therefore lesser amount being mortgaged) so that your cash flow is acceptable each month. Ideally, you eventually pay off the mortgage so there is no question that cash flow will be coming in each month, and substantially so. This ought to be a vital component to one’s retirement plan. Do this a few times and you won’t have to worry about money later on down the road, which is the main goal as well as the reward for taking the risk in purchasing investment property in the first place.

The “D” in IDEAL Stands for Depreciation. With investment real estate, you are able to utilize its depreciation for your own tax benefit. What is depreciation anyway? It’s a non-cost accounting method to take into account the overall financial burden incurred through real estate investment. Look at this another way, when you buy a brand new car, the minute you drive off the lot, that car has depreciated in value. When it comes to your investment real estate property, the IRS allows you to deduct this amount yearly against your taxes. Please note: I am not a tax professional, so this is not meant to be a lesson in taxation policy or to be construed as tax advice.

With that said, the depreciation of a real estate investment property is determined by the overall value of the structure of the property and the length of time (recovery period based on the property type-either residential or commercial). If you have ever gotten a property tax bill, they usually break your property’s assessed value into two categories: one for the value of the land, and the other for the value of the structure. Both of these values added up equals your total “basis” for property taxation. When it comes to depreciation, you can deduct against your taxes on the original base value of the structure only; the IRS doesn’t allow you to depreciate land value (because land is typically only APPRECIATING). Just like your new car driving off the lot, it’s the structure on the property that is getting less and less valuable every year as its effective age gets older and older. And you can use this to your tax advantage.

The best example of the benefit regarding this concept is through depreciation, you can actually turn a property that creates a positive cash flow into one that shows a loss (on paper) when dealing with taxes and the IRS. And by doing so, that (paper) loss is deductible against your income for tax purposes. Therefore, it’s a great benefit for people that are specifically looking for a “tax-shelter” of sorts for their real estate investments.

For example, and without getting too technical, assume that you are able to depreciate $15,000 a year from a $500,000 residential investment property that you own. Let’s say that you are cash-flowing $1,000 a month (meaning that after all expenses, you are net-positive $1000 each month), so you have $12,000 total annual income for the year from this property’s rental income. Although you took in $12,000, you can show through your accountancy with the depreciation of the investment real estate that you actually lost $3,000 on paper, which is used against any income taxes that you may owe. From the standpoint of IRS, this property realized a loss of $3,000 after the “expense” of the $15,000 depreciation amount was taken into account. Not only are there no taxes due on that rental income, you can utilize the paper loss of $3,000 against your other regular taxable income from your day-job. Investment property at higher price points will have proportionally higher tax-shelter qualities. Investors use this to their benefit in being able to deduct as much against their taxable amount owed each year through the benefit of depreciation with their underlying real estate investment.

Although this is a vastly important benefit to owning investment real estate, the subject is not well understood. Because depreciation is a somewhat complicated tax subject, the above explanation was meant to be cursory in nature. When it comes to issues involving taxes and depreciation, make sure you have a tax professional that can advise you appropriately so you know where you stand.

The “E” in IDEAL is for Expenses – Generally, all expenses incurred relating to the property are deductible when it comes to your investment property. The cost for utilities, the cost for insurance, the mortgage, and the interest and property taxes you pay. If you use a property manager or if you’re repairing or improving the property itself, all of this is deductible. Real estate investment comes with a lot of expenses, duties, and responsibilities to ensure the investment property itself performs to its highest capability. Because of this, contemporary tax law generally allows that all of these related expenses are deductible to the benefit of the investment real estate landowner. If you were to ever take a loss, or purposefully took a loss on a business investment or investment property, that loss (expense) can carry over for multiple years against your income taxes. For some people, this is an aggressive and technical strategy. Yet it’s another potential benefit of investment real estate.

The “A” in IDEAL is for Appreciation – Appreciation means the growth of value of the underlying investment. It’s one of the main reasons that we invest in the first place, and it’s a powerful way to grow your net worth. Many homes in the city of San Francisco are several million dollars in today’s market, but back in the 1960s, the same property was worth about the cost of the car you are currently driving (probably even less!). Throughout the years, the area became more popular and the demand that ensued caused the real estate prices in the city to grow exponentially compared to where they were a few decades ago. People that were lucky enough to recognize this, or who were just in the right place at the right time and continued to live in their home have realized an investment return in the 1000′s of percent. Now that’s what appreciation is all about. What other investment can make you this kind of return without drastically increased risk? The best part about investment real estate is that someone is paying you to live in your property, paying off your mortgage, and creating an income (positive cash flow) to you each month along the way throughout your course of ownership.

The “L” in IDEAL stands for Leverage – A lot of people refer to this as “OPM” (other people’s money). This is when you are using a small amount of your money to control a much more expensive asset. You are essentially leveraging your down payment and gaining control of an asset that you would normally not be able to purchase without the loan itself. Leverage is much more acceptable in the real estate world and inherently less risky than leverage in the stock world (where this is done through means of options or buying “on Margin”). Leverage is common in real estate. Otherwise, people would only buy property when they had 100% of the cash to do so. Over a third of all purchase transactions are all-cash transactions as our recovery continues. Still, about 2/3 of all purchases are done with some level of financing, so the majority of buyers in the market enjoy the power that leverage can offer when it comes to investment real estate.

For example, if a real estate investor was to buy a house that costs $100,000 with 10% down payment, they are leveraging the remaining 90% through the use of the associated mortgage. Let’s say the local market improves by 20% over the next year, and therefore the actual property is now worth $120,000. When it comes to leverage, from the standpoint of this property, its value increased by 20%. But compared to the investor’s actual down payment (the “skin in the game”) of $10,000- this increase in property value of 20% really means the investor doubled their return on the investment actually made-also known as the “cash on cash” return. In this case, that is 200%-because the $10,000 is now responsible and entitled to a $20,000 increase in overall value and the overall potential profit.

Although leverage is considered a benefit, like everything else, there can always be too much of a good thing. In 2007, when the real estate market took a turn for the worst, many investors were over-leveraged and fared the worst. They could not weather the storm of a correcting economy. Exercising caution with every investment made will help to ensure that you can purchase, retain, pay-off debt, and grow your wealth from the investment decisions made as opposed to being at the mercy and whim of the overall market fluctuations. Surely there will be future booms and busts as the past would dictate as we continue to move forward. More planning and preparing while building net worth will help prevent getting bruised and battered by the side effects of whatever market we find ourselves in.

Many people think that investment real estate is only about cash flow and appreciation, but it’s so much more than that. As mentioned above, you can realize several benefits through each real estate investment property you purchase. The challenge is to maximize the benefits through every investment.

Furthermore, the IDEAL acronym is not just a reminder of the benefits of investment real estate; it’s also here to serve as a guide for every investment property you will consider purchasing in the future. Any property you purchase should conform to all of the letters that represent the IDEAL acronym. The underlying property should have a good reason for not fitting all the guidelines. And in almost every case, if there is an investment you are considering that doesn’t hit all the guidelines, by most accounts you should probably PASS on it!

Take for example a story of my own, regarding a property that I purchased early on in my real estate career. To this day, it’s the biggest investment mistake that I’ve made, and it’s precisely because I didn’t follow the IDEAL guidelines that you are reading and learning about now. I was naïve and my experience was not yet fully developed. The property I purchased was a vacant lot in a gated community development. The property already had an HOA (a monthly maintenance fee) because of the nice amenity facilities that were built for it, and in anticipation of would-be-built homes. There were high expectations for the future appreciation potential-but then the market turned for the worse as we headed into the great recession that lasted from 2007-2012. Can you see what parts of the IDEAL guidelines I missed on completely?

Let’s start with “I”. The vacant lot made no income! Sometimes this can be acceptable, if the deal is something that cannot be missed. But for the most part this deal was nothing special. In all honesty, I’ve considered selling the trees that are currently on the vacant lot to the local wood mill for some actual income, or putting up a camping spot ad on the local Craigslist; but unfortunately the lumber isn’t worth enough and there are better spots to camp! My expectations and desire for price appreciation blocked the rational and logical questions that needed to be asked. So, when it came to the income aspect of the IDEAL guidelines for a real estate investment, I paid no attention to it. And I paid the price for my hubris. Furthermore, this investment failed to realize the benefit of depreciation as you cannot depreciate land! So, we are zero for two so far, with the IDEAL guideline to real estate investing. All I can do is hope the land appreciates to a point where it can be sold one day. Let’s call it an expensive learning lesson. You too will have these “learning lessons”; just try to have as few of them as possible and you will be better off.