Why Real Estate is Your Only Investment Option
Posted: Thursday, May 01, 2008
by Jeff Brown
Inner Projection
The return on investment for real estate is not slightly better than other options but tens if not hundreds of times greater than any other type of what are often deemed as "safer" investments. It is why seven out of ten of the wealthy invest in real estate. It is the safest and most consistent way to build wealth.
But if you're not interested in being wealthy or see a stigma attached to wealth for whatever reason, don't worry. Wealth here is simply defined as having sufficient money to meet your financial needs so that you don't have to rely on an employer, the government, or family and friends. And considering we live in a country that claims in its anthem, " Confirm thy soul in self control, thy liberty in law!" it sounds like we've got a responsibility to take care of ourselves, at least.
Real Estate vs. Bonds, CD's, Annuities, and Stocks
Consider that with most investments-bonds, CD's, fixed annuities-you put in a certain amount of money and then profit based on a percentage. If you put $100 in a bond, CD, or fixed annuity with an annul interest rate of 5%, then at the end of the year you know you'll have $105.
Stocks and mutual funds are a little different. And I won't go into the particulars of what you'll make by investing $100, for the stock market is volatile and diverse. But for example, let's say the average yield one year is 19%; however, that's not necessarily what your return is. There may be many stocks that are way above or way below that average. I'll get back to stocks in a moment.
Let's say you have $100,000 to invest. If you put that money into an asset class that has a predetermined annual percentage rate, you know what you'll have at the end of the year. Let's say you put $100,000 into stocks and your yield is $10,000 or 10%. Now let's consider that same $100,000 investment in real estate.
Let's say you put 10% down on a $1 million dollar property. With that same 10% yield you've now gained back 100% of your investment. You've gained $100,000 on your $100,000 investment! And on top of that, the entire value of the property is yours. You don't simply own $100,000 or 10% of the property but all of it: $1 million dollars. And we haven't even said anything about the increase in value or appreciation, rental income, and tax benefits, combined they considerabley outweight the benefits of any other asset class.
The Control Advantage of Real Estate
Now let's look at what you can do to increase the value of your investments. With regards to CD's, bonds, annuities, and stocks . . . simply nothing. Maybe with stocks you can go out promoting the company(s) you've invested in or buy up their products but that would cut into your return on investment sharply.
What about real estate? What can you do?
A lot!
101 Things You Can Do to Increase the Value of Your Real Estate Investment
I can't list them all, but here are a few examples: mow the lawn (one investor did so, increased the selling price by $20,000 and sold the property), pave the driveway; add a garage; change the carpet, or fixtures; remove an old shed; and so on. For a small investment, you not only increase the value of the property but your income by increasing the rent, which will pay for your investment and then some over the years to come.
And don't worry, you hire other people to do these tasks if you don't have the skill or time to do them yourself. And keep in mind that these are invest-and-hold properties not fix-and-sell as in flipping, a considerably inferior ROI compared to holding nor a wise way to invest.
How Do You Enjoy Increased Value?
You've made considerable money on your property, so how do you enjoy it? How do you turn it into cash to spend or reinvest? Sell? Not likely.
The best way to do so is to refinance. Let's get back to our example above. Let's say that over a period of time our $1 million dollar property has doubled in value. The appraiser notes this increase. You pay off the $900,000 balance on the loan you put $100,000 down on and are now handed $1.1 million dollars.
That's $1.1 million cash in your hand!
What do you do now? You've got a property that is valued at $2 million dollars but you want more properties so you take the $1.1 million and use it as a 10% down payment on a property valued at $11 million dollars. You now are the proud owner of $13 million dollars worth of property that is gaining in value while the mortgage is being paid by renters (and don't forget the tax benefits, something I will go into more detail at a later date).
Why Your Investment Advisor Doesn't Suggest You Invest in Real Estate
Most investment counselors only make money or a percentage from more standard investments like stocks, bonds, and annuities. They have yet to discover a way to make money from advising you to invest in real estate. And we know about those who advise, their advice often revolves around that which they can profit from either directly or indirectly. But that's another subject.
That's not all there is to it, but this is a good start on the benefits of real estate investing. I'm sure pressing questions have come up as you've read, but there's just not enough space in one article to go into detail about your concerns about the basics of real estate advantages. Most of your questions will be addressed in future articles, but this is a good start.
But whether your concerns are about the current foreclosure crisis, having to pay interest on large loans, afraid you'll have to fix toilets as a landlord / owner, or whatever, these by and large can be addressed to your satisfaction.
Here's a case in point before I conclude.
I know of an investor who owns a growing company. He doesn't have the time or desire to spend much time working on his real estate investments (Good thing about real estate is that it can be done part time). He owns several multiplexes (mostly triplexes), but in one eight year period he only visited them four times. He uses property managers to maintain his investments and gives the tenants the phone numbers of his maintenance staff if there is a need.
I know of another investor who just spoke to me today recalling the number of times she had to run out to a property to solve problems. She then hired a property management firm but complained about how they nickled and dimed her to death.
All of these concerns and more can be addressed to your satisfaction. Just remember the phrase, if there's a will there's a way.
Bottom line, of the investments, real estate is the least complex, requiring the least amount of time to maintain. There is obviously some work, as in the amount of time needed to find good properties and to get up to speed with the basics, (but like any field, constant learning is adventageous), but because of its nature, with time you will be making more money and finding greater security than you will with most other investments.
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Top-level comments on this article: (1 total)Great article. Remember, the lease contract takes care of many of the problems encountered. The cost of a lawyer to draw one up for you can eliminate the pestering, nagging, whining tenants.How right you are! Thanks for stopping by.
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