For those just getting their feet wet in real estate investing, picking that first property can be a knee-knocking experience. Of course, the objective is to make your choice based on purely economic parameters. But clearly, when it comes to taking a risk with your own hard-earned money, that can be easier said than done.

Many times, when it comes to deciding between Property “A” and Property “B,” emotions will take over and attempt to dictate what you should buy. Many novice investors indignantly declare, “I refuse to purchase any building that I wouldn’t live in.” If you recognize yourself making that statement, you should realize that you’re on the verge of leaving lots of great opportunities behind for someone else to discover.

But don’t fret, you are not alone. In fact, it’s easy to see why emotions rule the day—you’re fearful of losing what little money you have been able to save. In fact, many will argue that the fear of losing their nest egg is as much (if not more of) a motivator as is the promise of gain from investing it. To illustrate, let’s say you were invited to a get-together at 9 PM to learn about a business opportunity that could very well make you $1,000 on a $5,000 investment. After a bit of thought, you might decide to spend that time watching the news or Seinfeld reruns on TV instead. But let’s turn the tables: What would happen if you got a call and were told you would lose that $1,000 if you didn’t go to the 9 PM meeting? Precisely.

There is no shame in a bit of apprehension. In fact, playing the devil’s advocate will usually help you make prudent decisions along the way. But beware unfounded fear about losing money by buying the “wrong” building could very well keep you from obtaining just the perfect fit for your long- term plan. Thankfully, unlike investing in commodities such as stocks and bonds via the advice of a so-called expert, there are concrete things you can do in this game that will minimize the risk of ever overpaying for a building, namely, learning how to value property accurately for yourself.

Expert help is nice, but when it comes to protecting your own nest egg, the peace of mind that will come from conducting your own analysis will be nothing short of invaluable.

The installment sale is another significant technique for deferring  payment of capital gains taxes. Here, sellers elect not only to  sell property but also to put up some or all of the financing needed  to make the deal work. Because the property is being sold now but  paid for later, such deals are called “installment sales.” Where taxes  are concerned, an installment sale differs from the 1031 exchange  because you actually sell the property without getting a new one in  return, but you still defer paying some or most of your capital gains  taxes. Here’s how:

Until you actually receive the profit from the sale of  your property, you don’t owe the IRS a penny. Instead,  with an installment sale you would be carrying the note  (and your profit from the sale) long term and receiving  interest-only payments from the buyer. The idea is to keep  earning a high interest on the taxes due for many years.

By doing this you would delay paying the capital gains  until the contract is complete.  The rules for qualifying for an installment sale were significantly  modified by the Installment Sales Revision Act of 1980. In the  past there were rules regarding the amount of down payment and  the number of years needed to qualify. These no longer exist. The  advantage of an installment sale now is that you are required to pay  capital gains tax only on the amount of the profit you receive in one  year. You pay the balance of the tax due as you collect the profit in  subsequent years.

The first major risk management tool was insurance. The insurance industry had its origins in the ancient practice of bottomry, in which the owner of a ship borrowed money for equipping the vessel and, for a definite term, pledged the ship as security. If the ship was lost in the specified voyage or period, the lender (insurer) lost his money. Clearly, a rich lender had opportunities for diversification unavailable to the owner of a single ship. Bottomry is virtually extinct today, although the maritime insurance business (which lacks the lending aspect) that replaced it is alive and well. Bottomry was a remarkable development because the risk to the lenders could still be very significant in view of the massive potential losses from a single storm or pirate, whereas the ability to diversify these risks could be limited to the commercial fleet operating out of a single port. Interest rates must have reflected these risks.

The underwriting of accidental risk became an important business in 1771, when 79 underwriters pooled their activities and created the original Members of Lloyd’s. They would appear to have intuitively understood the value of diversifying their risks.

Benjamin Franklin set up the first American insurance company in 1752, writing fire insurance. Since then, a massive global insurance industry has developed to handle a host of relatively small risks whose occurrence is statistically predictable: Health and dental insurance, life insurance, fire and flood insurance, and automobile collision and liability insurance are examples.

These instruments are familiar because they work their way into most household budgets.

Modern risk management depends absolutely on modern mathematics. 7 In its absence, the ancients were as handicapped as mariners without a compass. The introduction of modern arithmetic allowed thought pioneers such as Cardano and later Galileo to develop the theory of combinations—essential for figuring the probability of outcomes when rolling dice or drawing cards. Here the modern concept of probability was born.

Though useful at the gaming table, probability theory was still not very useful for real world events. The theory of statistics was needed for that, and the first statistician might have been a Londoner, John Graunt, who studied the age distribution and the causes of death from bills of mortality in London parishes.

The primitive database (i.e., the church records) from which Graunt derived his study was itself an innovation and was less than 60 years old at the time of Graunt’s study, published in 1662. Databases would go on to become a powerful source of wealth and value, but that is another story. The astronomer and mathematician Edmund Halley extended Graunt’s work into an analysis of life expectancies, creating in 1693 a scientific basis for the valuation of annuities. Still, it would take nearly another century for a modern life insurance business based on actuarial data to evolve.

From a mathematical viewpoint, the remaining big step was the discovery of the bell-shape curve. Abraham De Moivre in the 1730s, using the binomial theorem,8 developed the concepts of the normal distribution and the standard deviation, the latter being a measure of the dispersion of the distribution about the mean. In Chapter 5, we relied on his formula, coded as NORMSDIST in the Excel spreadsheet program, to calculate Black-Scholes option values! And how did we calculate volatility? We used De Moivre’s formula for the standard deviation.

The chambers of commerce of many countries put on events all over the world to lure investors to their countries. In many countries, when you go there and reveal that you are an investor, you will be treated with respect and given a lot of support and assistance.

When you have invested in a country, you will often be treated like royalty and offered even more investments that may not already be publicly available. And when you have invested sufficiently in some countries, you will get invitations to advise them, joint-venture with them, or sit on their corporate boards.

What a sharp contrast to other professions! A few people have admonished me for suggesting investors look beyond their own borders, claiming that real estate is so complex, and that the laws regarding real estate are so involved, that it is difficult to keep up with the regulations in your own turf, let alone in a foreign country. Consequently, they claim, investing overseas is risky and foolish, and I am just grandstanding or showing off by talking about investing internationally.

Well, let’s consider a few alternative attitudes. First, few people living in the United States realize this, but the value of the U.S. dollar, when measured against a trade-weighted basket of currencies, has fallen in the seven years since the year 2000 by a massive 58 percent (as tourists traveling to Europe are finding out through the increased cost of a vacation there). In other words, if you had shipped $1 million overseas with the intent of investing it in real estate, but you never quite got around to making the investment, and today you repatriated the funds back to the United States, you would have more than $2 million. I have investors who took my advice and invested in New Zealand at a time when a United States dollar bought NZ$2.40. Today, that same NZ$2.40 buys over US$1.90. In other words, the value of their investment has nearly doubled without even taking into account how the investment in New Zealand has fared.

When you are eligible or required to take distributions, you can opt to receive either the entire sum or periodic distributions for the Rest of your life. You can also take in-kind distributions. The taxable amount, if applicable, is based on the fair market value of the asset at the time of distribution. For example, Babette’s and Peter’s Roth IRAs each owned a 50 percent share of a flat in London. Because they were prohibited to use it, they leased it. The rent was paid to their IRAs, which also paid for all expenses. But when they turned sixty-five, they each took their share of the flat as a distribution without tax consequences. Now they are enjoying living in it themselves.

If your IRA owns assets offshore, determining the fair market value is not quite as straightforward. If you have real property, you will need to get an acceptable appraisal and have the amount converted to U.S. dollars. In the case of cash, the value of the currency being distributed must be established on the date of distribution in U.S. dollars. For required minimum distributions, the fair market value of the account is determined as of December 31 of the previous year. This information needs to be reported to the IRS, regardless of whether the IRA is a traditional or Roth. When distributing an offshore asset, timing is important because of fluctuating exchange rates, so select the day of distribution carefully.