Craig Nassi’s journey into the world of real estate investment started modestly, with one small development project in 1994. Since that initial venture, his project management skills, keen sense of business development, sharp negotiating tactics, and entrepreneurial know-how have allowed his New York City-based company BCN Development to grow into a nationally renowned leader in the world of real estate.
On his journey to the top, Nassi has learned firsthand some of the biggest risks that come from investing in the industry; he has also discovered the massive rewards which often accompany them. Here, he outlines some of the major risks and rewards to buying and selling real estate as a form of profitable investment.
No Guarantees Protection of Principal Investment
As noted by Craig Nassi, one of the major risks of real estate investment is the lack of total security and potential for loss. In contrast to savings or money market accounts, real estate investment holds no guarantee that the principal investment will remain intact. Although not common, it is technically possible to lose an entire investment if the project fails completely.
Leverage: An Opportunity and a Risk
Unlike many other types of investment, real estate offers the unique opportunity of leverage. According to Craig Nassi, this involves being able to use credit such as loans to finance the purchase or development of a property investment, adding further value to your investment portfolio.
As an opportunity, leverage gives investors the ability to make bigger investments with less money, increasing the investment’s potential return. As a risk, leverage presents several financing dangers. If a borrower fails to satisfy the debt service on the loan, the recourse can negatively impact the investors personal life.
With real estate investment, if you have personally guaranteed a mortgage loan (as many investors do) then your personal assets are not protected should the investment fail. This means that if you are not able to maintain your loan obligations for any reason (even those which are out of your control), then the lender can collect the deficiency from your personal, unrelated assets.
Tax Benefits of Real Estate Investment
In comparison to other forms of investment, real estate is known for its promising and appealing tax benefits. This includes annual deductions for depreciation or interest expenses. For example, some federal tax regulations enable investors to defer payments of investment returns when reinvested into another property, which cuts tax costs and promotes further investment growth.
Additionally, as a property investor you may claim or deduct expenses to offset your investment income, meaning you will be taxed less on your income from real estate investment than you may otherwise be from other forms of income.
The Benefit of Low Volatility
Other common types of investment fluctuate frequently, making investment treacherous and turbulent. Real estate investment, on the other hand, has low volatility. According to Craig Nassi, this means that unless you are making improvements to the property to significantly raise its value, real estate values do not typically change dramatically over short periods of time.
In turn, real estate is more stable and, in many ways, less vulnerable than many other investment types. In most cases, real estate will appreciate over the long term, and do so consistently. It is slow to fall and slow to rise, meaning with patience you are guaranteed in most cases to claim a solid investment return.