Stocks have often paraded as being lucrative - but are they really? I sure don't think so - and even some financial experts won't help but to agree with me. Remember Enron? Remember Exxon Mobile? Or by now you've probably also heard about the buy-out of Bear Stearns by JP Morgan Chase at an astounding $2 per share. Bear Stearns' stock recently fell from a 2007 high of $158.39 to about $30. As you watch the markets tumble, you really have to ask yourself "Are stocks really the way to go?" I say Hell No! Overall, I believe that real estate is the quickest, safest and most consistent way to become wealthy the world over.
Investing in real estate (By investing in real estate, I mean buying a property and reselling it soon after or renting it out) is a more stable investment than investments in stocks. Many wealthy people are finding real estate a much better short-term and long-term investment. It's less risky and won't lose all of its value in a matter of hours; It can produce a consistent cash flow and a higher return on your investment; it gives you more control over your investment; it lessens your tax burden; it gives you the option of using someone else's money to invest; and you can take advantage of insider information (in fact, it's highly recommended, your investment thrives on it) without ending up in the can like Martha Stewart.
1. Less Risk - A while back, I asked my banker for a loan to buy some stocks that respected financial experts had all agreed was dead sure to appreciate significantly very soon. I even went as far as showing him a copy of the report and providing evidence of industry trends and statistics that supported these speculations. And while my banker accepted the evidence as overwhelmingly reliable, he still practically laughed me out of the building. Seriously, ask yourself, "why is that?" Banks simply won't lend you money to buy stocks, but they readily finance real estate purchases. What does that tell you? Real estate investing is a safer, more secure investment. A bank will loan you money to buy real estate, but not stocks, because banks think that real estate is a less risky investment. And it is. Real estate is a physical, tangible asset. A share of stock may be pegged to a viable business, but in the end it remains a mere paper asset. If managed poorly, seemingly lucrative stocks can lose the majority of its value within days. Some profitable stocks have depreciated in value overnight by over 92 %. Yes - I did say 92% overnight. I go back to the more recent example of Bear Stearns whose stock recently fell from a 2007 high of $158.39 to a mere $30. This certainly does not happen with real estate. In the last 20 years for example, the largest drop in US real estate prices has been about 12 %, which occurred over a two-year period from 2006 to 2008. And get this, over the same period 2006-2008 real estate investors in St. Lucia and some other countries in the Caribbean countries have in some instances recorded gains of over 50%.
2. Consistent Cash Flow - Unlike stocks, owning a property and renting it out provides consistent monthly cash flow. With the right tenants you can receive money in your pocket on a regular basis. Owning stocks doesn't give you this benefit unless you own stocks that pay dividends. Even then, however, the dividends are not as frequent or as regular as monthly rent payments.
3. Higher Return on Investment. When you invest in real estate, your investment is really just the money you offer as a down payment on the property. The monthly cash flow you receive provides a higher annual return on that investment than the returns you gain from investing in the majority of stocks and mutual funds.
4. Greater Control Over Investment Income - With real estate, you can make certain improvements to the property and increase the rent over time. This increase will put more money in your pocket and increase the return on your initial investment. That way you can control how much you make from the property but with stocks, you have no control over the return on your investment. You give up that control to the company in which you invested your money, and simply hope it does a good job. Real estate also gives you another aspect of control. You have control over how your properties are managed; maintenance, landscaping, improvements, the types of tenants and when the rent is paid. These days even if you own multiple properties, the burden of managing those properties can still remain both profitable and manageable. You can just hire a management company to take care of all your property management issues. If you're not satisfied you just fire that company and get another one. You don't have that control with stocks. If a company whose shares you own has spent money frivolously, taken on too much debt, failed to meet sales expectations, or posted a huge quarterly loss, you can't fire its managers and hire better ones. The only thing you can do is sell the stock. And often when you do find out about it your only choice is to sell at a loss.
5. Tax Incentives - The most viable investment available that involves possible tax incentives is still real estate. There is seldom reason to fear a downturn, the return can be substantial, and property that is purchased right and properly cared for will almost always appreciate in value. Moreover, not only does real estate provide you with monthly cash flow (unlike stocks), but you also don't have to pay taxes on that rental income but you do pay taxes on dividends. Additionally, there are several deductions you can make that will minimize the majority of your tax burden, such homeowners insurance, depreciation, etc. Additionally, income property investments can typically be held for long-term gain, as well as a hedge against inflation. Real estate investors actually profit from inflation because with a 20% equity, just a 2% inflationary increase in property values results in a 10% return on investment; and I say this without even considering normal operating profits and tax benefits!
6. Leverage - The most powerful reason for investing in real estate is because you can use other people's money to buy it. A bank will loan you up to 80% or as high as 90% of the purchase price for real estate. If you invest in the right location you can realise over 10% appreciation in value of your property. With commercial properties, the properties qualify the loan - not the borrower. Commercial lenders concentrate primarily on the income produced by the property to determine the financing risks. So with a few financial calculations, you can determine if the property will qualify the loan amount requested. Real estate can be purchased in many forms including shopping centers, industrial buildings, warehouses, single family residential housing, apartments, and even undeveloped land. The investment can be direct, or through various kinds of partnerships and investment trusts. Real estate investing can help you leverage the power of other people's money to make your own personal fortune.
7. Insider Information - You can use "inside" information to buy or sell real estate. As you probably know (at least by now anyway), buying or selling stocks based on inside information (insider trading) is illegal. But it isn't illegal with real estate. You can buy real estate based on a "tip" you discovered from someone with knowledge or from your own research. For example, if you learn that an undeveloped property will become more valuable because it will soon be re-zoned for commercial use or because the government is going to construct a new highway close by - You can act on it and buy that property without fear of criminal prosecution.
Investing in real estate is still the most sure firebrand way to rake in loads and loads of cash instantly. Investing in real estate is one of the safest ways to make a fortune. If you don't believe me ask millionaire and real estate investor, Donald Trump. When investors were leaving the stock market in droves, they turned to investing in real estate. Real estate is an excellent choice compared to stocks. The tax deductions and potential for price appreciation are enough reasons for burned out stock market investors to make the switch. Real estate is one of the best and most secure investments there is. It gives you so many advantages that stocks don't. It's a worthwhile investment, and the passive income it generates can completely liberate you from your job.
