Real Estate: Avoid the Burn by Amey Stone in New York

It's a very useful article for those who are about to buy a house. I know quite a few people who buy houses for investment purposes. They dump all their money into real estate. I think it's not a right strategy.

First, realize that you may be getting in late. "The best real estate investing was done three to five years ago," says Geordie Crossan, a financial planner in Westlake Village, Calif. When it comes to the purchase of a second home, he advises clients to consider whether they're already overexposed to real estate in their portfolios -- much the way investors were overexposed to tech stocks in 1999. "If your real estate holdings are more than 75% of your total equity, you need to look at building up some other assets," he says.

"NOT AN IDEAL STRATEGY." More second-home buyers today are blurring the lines between vacation and rental properties, justifying the purchase by planning to rent it out and figuring it's sure to appreciate. But if you're really looking for an investment property, do the math. Rental income minus expenses should produce a positive cash flow, says Gayle Henderson, an agent with RE/MAX Excaliber in Scottsdale, Ariz. "Some buyers are willing to live with a shortfall if they think prices will appreciate rapidly, but that's not an ideal strategy," she says.