Despite what the seminars may claim and the how-to cassettes peddle, there's no great secret to building wealth and security in America. The most important investments any American will ever make are education and real estate. Education is investment in one's self. Real estate is investment one's community.

Whether your education is practical or academic, you'll need an education of some sort to earn a decent income. After you've figured out how to earn a decent income, the next step is to figure out how to invest wisely and how to protect your income from taxes. There is no better way to accomplish this goal than by investing in real estate.

Real Estate vs. Stocks
Investor Abel is an imaginary investor who is a gifted stock analyst and investor. He puts $25,000 in the stock market and after a year of 15% gains, he earns a whopping $3750. This assumes that Abel, as the smartest stock investor ever, managed these gains without any transaction fees. Furthermore, he figured out how to avoid taxes on all of his gains.

Investor Baker is an imaginary person of with limited investment savvy. He puts $25,000 into a real estate property. His investment is leveraged into a $100,000 purchase. Assuming a 5% annual property value gain, his appreciation is $5000. In addition to this $5000 of capital growth, he has reduced his tax basis due to the property depreciation. (Depreciation in this case would be at least $3700 annually.) Finally, he collects any positive cash flow the property may have generated.

This example compares a brilliant stock analyst to a mediocre real estate investor. Imagine the difference we compared stock market reality to real estate reality.

The comparison above makes clear some of the many reasons why real estate is such a great investment. But if real estate is such a great investment, then why invest in anything other than real estate? Well, because there are certain limitations and hassles with real estate that you won't find in other investments.

For example, real estate is not liquid. Real estate is the best long term investment you can make in the world, but if you need your money back quickly, real estate is not the place to invest.

You may have heard stories of "flipping" properties to make quick cash. This is not real estate investing. The practice of flipping is really an investment in construction and not real estate. Make no mistake, an investor can earn money by putting time and energy into construction projects, but there are a good many risks associated investing in a business outside of your area of expertise. So, don't let anyone confuse you. There is no free money in America. Flipping involves real estate, but flipping is not real estate investing.

Real estate investing is about patience. This is because every year rents (i.e. income) goes up but every year the mortgage (i.e. the primary expense) gets smaller. This inverse relationship is something that no 401k can compete with. A smart real estate investor rarely ever sells properties. Rather, the real estate investor holds on to the property, but repositions his debt to invest in additional properties.

Life is too short to deal with bad renters.
The second problem with real estate is cash flow. Real estate cashflow comes from tenants. If you have tenants, you have problems. Even the best of tenants have needs and all property will require maintenance and management at some point.

Most people with enough money to invest in real estate already have a full plate. The last thing any investor needs is a part-time job managing property. This discourages a lot of people from investing in real estate. Some investors seem to think that investing in real estate means property management.

Property management is a business in and of itself. If you want to invest in real estate, but you don't want to be a property manager, the solution is really quite simple: employ the services of a property manager.

A property manager maintains a level of separation between the landlord and his tenants and property. It's important to invest in real estate without emotionally investing in tenants or property. A property manager helps ensure that you always make the best decision for your family, rather than making the best decision for the tenant's family.

Additionally, a competant property manager gives you protection from certain liabilities. Property managers usually charge a percentage of the rents collected.

The first thing to know is what type of property management you are looking for. Do you have a large commercial building to manage? Are you the owner of a small apartment building or other residential property? Are you a homeowner’s association? How much work and what type of work will you need your property manager to do?

Make sure you know your goals and expectations in advance, as well as detailed information on the property you wish them to manage.

Experienced property managers can provide a list of references. Check those references. Then contact the Better Business Burea to see if any complaints have been lodged against the property manager or his brokerage. One simple way to check professionalism is to find out the status of the property manager with regard to trade associations, organizations and licensing. Is the property manager bonded and what insurance does the property manager have?

What kind of fees do they charge, and what type of financial reports will they provide? A property management company have access (at least to some extent) to your finances, so make sure you do a thorough investigation before hiring anyone. Most property managers charge a percentage of rents collected. You may be able to negotiate this amount or arrange a flat fee or even an hourly rate.

The Role of Property Management
A property manager is an individual or company that operates real estate property for a fee. This can be for rental properties, or for homeowners associations. Some property managers manage townhouse or condominium communities.

Rental property managers serve as a buffer between owners and tenants, and may do things such as finding or evicting tenants, handling repair projects and maintenance, overseeing landscaping, collecting rent, and even paying expenses and taxes. The specific tasks depend upon the needs and wishes of the property owner. Property management companies also handle commercial properties such as office buildings, freeing the owners from the day to day responsibilities. Property management firms that work with homeowners associations generally handle the day to day operations of the association, such as hiring subcontractors, paying association bills, collecting monthly association dues or fees from homeowners, and working with the homeowner’s board of directors to implement various projects.

How to Locate a Property Management Company
When looking for property management, talk to friends, your attorney or your accountant to see who they know and would recommend. A number of property management firms advertise on the internet. You can also check professional organizations such as the National Association of Rental Property Managers (NARPM), the Institute of Real Estate Management (IREM) which is a division of the National Association of Realtors, and the Property Management Association (PMA). Also check state and local resources, as there are a number of statewide organizations representing the interests of property management companies. If you are a member of a homeowner’s association, ask other homeowners about their property management company.

What to Expect from Your Property Management Company
Every aspect of the property manager’s responsibilities should be outlined in a contract. Detail their financial responsibilities, including their ability to enter into subcontracts on your behalf. Specify the types of financial reports you expect. A good property manager should stay current on new laws in the area that are relevant to your situation, so make sure there is a system in place for your management company to alert you to changes in the law. You may want the individuals responsible for your property be Certified Property Managers. These individuals are accredited by the Institute of Real Estate Management, and must have a minimum of five years experience. If you expect your property manager to attend regular meetings, make sure to spell that out in your contract.

A good property management company takes a lot of the burden off of owning rental real estate, or of homeownership in a homeowners association. Finding the right property manager may take time, but is worth the effort. I am a landlord myself. Although I focus on managing my own properties I take on other properties on a case by case basis. I prefer to work in and around River Towers just south of Alexandria and off Fort Hunt Road or Rt. 1.