Hi there,
I was just curious as to why you would invest in real estate? Other than the money, what is the allure or the benefits that really appeal to you or convinced you that real estate was what you wanted to do?
Thanks in advance,
Kris
Increases your net worth, appreciated values, historical returns, leverages your money, diversify your investments. I was a long time stock investor and would cross my fingers to make a 10% return. I took a look at seriously investing in real estate, when i saw the trends in the work place declining with layoffs, and as i get older…well the competion gets younger :(. Real Estate is not a get quick rich (although some have done very well in the short term), Real Estate is a long term investment and has a long term track record of consitant appreciation. Best of luck to you!
You forgot the tax incentives 
You can’t create long-term wealth by working a job. Those earnings are taxed to death.
Also, ROI is better than stocks. If I buy a 300k home for $30k down and it goes up 10% in say a year, I am now up 30k, so double my investment. For this to happen in stocks, I would need my $30 per share stock to go to $60. How often will that happen?
Also if I want my money out of a stock, I have to sell it. With RE, you could borrow off the increase and keep the asset working at full capacity.
If nothing else, buy a home to live in.
Most of the people who have made large amounts of money in this country have done so via Real Estate. Most of the people who have large amounts of money keep it in Real Estate.
One of the main reasons I invest in real estate is because of the security of it. Once you learn how to do it right there are no limits, plus EVERYBODY WILL ALWAYS NEED A PLACE TO LIVE!
No one has mentioned the ability to leverage your investment. If you put 10k in the stock market and it goes up 10%, you have a net worth of 11k. If you use that 10K to put down to buy a 100K house and it goes up by 5%, you have a net worth of 15K. (Plus all the other advantages mentioned above)
Wilson
I used to invest in stocks until I found out that most of the CEO’s fudge their numbers without any consequences. Look at what happened to Enron. You dont actually own anything with the stock market, it is just paper money. Also how can you compete with all those insiders who work for the company and know the earnings well before they come out.
With real estate, at least you PHYSICALLY own something. Your property is not controlled by some corrupt CEO. Real estate is a limited commodity. There is only so much land available in the United State. Aside from the tax benefits, people will ALWAYS need somewhere to live.
But do be careful. I do believe there will be a housing bubble so make sure you do your research. Right now I am looking into investing in good areas where there has not been a bubble yet such as St. Louis.
I agree with all of the above, especially wilson. Leverage is huge! I can’t think of any other investment in which you can leverage your money like REI.
I also like that there are so many ways/strategies to invest in RE: rentals, lease options, rehabs, foreclosures, short sales… the list goes on for a while. If your intelligent enough and creative enough you can select the right strategy for the right property to make your money: either quick in-and-out, or long-term, whatever your goal is.
And the more creative you get, the more profitable REI can become…
Actually, I did
It all depends on what your goals are. I always recomend diversifying yourself. Do not invest everything into one thing. Also if you are doing the Landlord thing, make sure the property cash flows positive. Why run a private welfare office?
Also previous gains do not mean future results. Follow some basic rules, like Will I make money on this deal? That is my most important one. Never count on appreciation to bail you out, what if the market flattens out? What if homes are goind down in value? It can happen, and it has.
Another advantage is that when you make money in stocks, in order to get that money into your pocket, you have to sell the investment (kill the gooses hat lays the golden egg). In real estate you get a check every month, and you still own the investment.
Depending on the stock, you could find yourself unable to sell.
Your selling price is completely controlled by others to the fullest.
The price for the stock is the price period. Imagine a stock is like a neighborhood. With stock, the median price is the actual price. With a neighborhood, you have many price points to select from. It is kind of like being able to buy different flavors of stock.
Have you ever had a home lose 2% or more of its worth in 24 hours? Very rare in homes, very common in stocks. I know of many people who owned stocks and experienced huge losses overnight in a regular market.
Liquidity is the key.
Stocks are very liquid. You can sell 10,000 shares of stock within minutes of placing the sell order. Can’t do that with Real Estate. Even in a hot market it can still takes days to fully complete a Real Estate transaction.
In a down day on the stock market you can still easily sell, but in a downward market in Real Estate, could take months if not years to sell.
And just like Real Estate, stocks can lose value, or gain value, but you only gain or lose if you sell.
Stocks cost almost nothing to hold, you can hold thousands of shares and not pay any property taxes, mow lawns, repair toilets, put of For Sale signs, collect rent or any of that fun stuff.
Stocks have their place, just like any investment. You should have some, just like you hold Real Estate. Are stocks fun? Only in a rapidily increases market, just like Real Estate. Are they fun in a down market? They can be, you can short stock! Is Real Estate fun in a downward market? No, because you get to see your paper equity disappear.
Owning some stock is not too bad but
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You have cash on cash deals. If you have $1000 cash to your name, you can buy $1000 worth of stock. Margin is false leverage.
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You can’t take out a loan against your stocks that I know of.
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You can’t live in your stock.
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While you own the stock you are not getting excellent tax breaks.
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If the value of the stock is $10, you are not going buy it at $8.
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Can’t buy stocks no money down. This all goes back to point #1.
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You can’t become wealthy with stocks. No you can’t. Anyone you name might make money in stocks but does not and did not create wealth with stocks. There is a difference between being wealth and being rich.
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You can’t do anything to increase the value of your stock. You can’t put new paint up, add curb appeal, remodel, etc. I guess you could spam 10 million people and tell them your stock is about to explode
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To make real gains (not the lousy few percent per year), you need to be connected to news and either know things before the public or wait for something to fall in your lap. It is far more information intensive.
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You need large amounts of cash to see solid returns. $1000 that goes up 3% is $30. After you buy the sunday paper and a cup of noodle, you are broke.
It is easy to make money short term and harder long term. If you look at the most common “good” funds, you will usually see larger returns in the present and weak returns for their 5,10, and 15 year averages.
Real Estate is a more forgiving platform for investors.
My grandfather had a seat on Wall Street, many in my family made lots of money off the street and I started playing the game when I was in 9th grade. Still, I would not recommend it to most people. If all you want to do is put your money in and take what amounts to 5% returns annually, go buy a CD and save your time.
If you do buy stocks, get familiar with the stop-loss order.
Ever try to sell Real Estate in a down market? At least with stocks you CAN sell. The liquidity is not there in Real Estate. Leverage is a good and bad thing, like chocolate. Too much can be dangerous. Leverage is what is going to collapse the Real Estate market in the end. I am not leveraged, I own everything and all I care about is Cash Flow. Just like any other business. I do not build businesses on a sinking foundation.
No I have not Dan. I can’t imagine why in the heck I would sell in a down market. That is the time to buy lol. This is one reason why people don’t create wealth. They buy and sell at the wrong points. If you can not let your investment work, you should not invest.
Leverage won’t crash anything. It has been going on for hundreds of years and has created enormous wealth. It is the people that are to blame. It is all how you manage yourself and your finances. There are lots of people who should not leverage anything and should not even have one credit card. Basically if you have a credit card up to the limit from garbage purchases IE clothes, trips, and eat out restaurants, you are one of those people. But this is just like anything else. There are people who should get into business for themselves, and many who should work for others.
I have people come to me often and ask for business advice and I tell some of them to not bother. They don’t have the mental and life build to do it successfully and will just get themselves in trouble.
There is a good chance that within the next 10 years we will see an astronomical number of foreclosures on the west and east coasts because of high property costs, IO loans, and many people living above their means off their equity. Will it affect me negatively? Nope. I will be there to look for deals. There will be many investors scooping up homes and time will go on.
Yes the downturns are great for buys, and some investors have to sell because they were counting on appreciation, rents, low ARM rates, winning the state lotto, etc etc. Also in a down marktet cash is king! Banks are not loose with the money in down markets, creative financing will get shut off. That is why a lot of people can not afford to buy in a down market.
It all boils down to management. Serious investors should take courses in things like economics.
Like I said though, it is tough to get consistent long term yields on stocks. Getting 1-5% is not too rough but you could get this from other avenues with no risk. Getting 10% growth annually for a decade or more is harder.
Also there is the amount of capital needed. If you want 1000 shares of a solid stock that is $60 per share, you need $60,000 at your disposal.
You could go a more riskier route and day trade (should have 40k+ to even attempt). Now your money is at a greater risk. Sure, you could make thousands in a day (I’ve done it), but you can also lose thousands in a day.
If you have little capital, you are forced to be a small-time penny stock investor, where the risk is even greater and the rewards are lackluster.
If go to a fund, you will normally be charged if you want to pull your money out (and possible other fees). Typically you want to leave your money in the fund for at least 10 years to see positive gains. If you look at some of the more popular funds you will usually see decent 1 year gains, ok to negative 5 year gains, and 7-11% 10 year annual gains.
But I don’t want to get on a debate about stocks. I have managed other people’s money and netted them 300% returns in 12-24 months, and done well for myself over the years. Like any other market. There is money to made and lost. Choose wisely.
I won’t lie. The market is fun and can be highly addictive, even if you are a very small player (IE $10,000 or less). Nothing like making a good earning before lunch. Of course, nothing like having a really bad day. It is the ultimate play on emotional control. Can you sell your stocks and take a $1000 loss on the day? Or will try to hold and end up losing $3000?
The real money for non-instituational investors is made in between the ticks. Get in, get profit, get out. I will give you an example.
Stock ABC is down on the year. It is going to go up, you know this. It is currently at $5.75 per share. You and a friend have it targeted at potentially $8.00 by years end. You are more experienced than your friend. He buys 1000 shares at $5.75 and is going to wait until it hits $7.50 to sell.
You buy your 1000 shares as well and put in an order to sell at $6.75. Trading is up and down and at 2:38pm the stock hits 7 1/8. Your order was executed. You made $1,250 less fees. Closing bell sounds and the stock is sitting at $6.5. The next day comes and at 11:09am the stock hits $6.25. You buy 1000 shares again. Again you put in a sell order, this time for $7.00. Trading is fierce and for a brief moment around 3:00 pm, the stock goes up to 7 1/4. Your order was executed. You made $750 less fees. The stock closed at $7.
4 months goes buy and the stock finally climbs over $750. Your friend cashes out $1750, what you made in those 2 days. In that 4 months span, you played with the stock some more and had many more hits.
Just a simple example. Many low priced stocks like this don’t move that much but they can. The higher you go up the ladder, the more chances there are to move.
For example, a 25 cent move on a $1 stock is 25%, but on a $10 stock, it is only 2.5%, and only 1.25% on a $20 stock.
If you had $10,000 and bought 1000 shares of a $10 stock and got just a 25 cent swing, that is $250. Of course, there is the bid and ask, but I am not going to go in detail on buying stocks. Just as well, you would LOSE $250 with a 25 cent swing.
From a risk/reward perspective, stocks are a terrible risk. They tie your money up, and they are extremely volatile and unpredictable. If you want to make money, you have to sell them. It may be ok for some, but it’s not for me. At least with real estate, you make money and keep the investment at the same time. You don’t have to sell your real estate to make money from it. Even when you just buy a residence, and live in it, you make money.
Great stocks pay dividends. You just have to know how to pick them, just like Real Estate. Right now you can buy a home in Buffalo for about $500, fix it up for 50K and sell it for 30K WOOO HOOO Look at all the money I made! There are bad deals in Real Estate just like any other investment out there.
Remember I am starting to here a lot of people cheering Real Estate as the best investment ever, just like poeple did in the late 90’s/early 2000 about tech stocks. I am hearing the market is different, a new economy, you can live in a house, land is limited, Real Estate never goes down, if it does buy more and so on. The only thing that is true about the above statement is that you can live in a house. But primary residences are not investments, it is a place to live, you do not make money every month with a primary residence. You have to pay taxes, insurance, utilities, and mainenance. If it appreciates a great deal, sell it and move to a cheaper location. Your commute might be longer, gas isn’t getting cheaper, you might even have to find a new job, schools might be worse, the neighborhood might be rougher. But you made a quick short term gain!
When I said “even when you buy a residence and live in it, you make money”, I didn’t mean that you make money as in income. I meant that you make money as in appreciation, without actually buying it for that reason. I don’t buy my residence for appreciation, I buy it because I want to live there. The appreciation is a bonus. The bills you pay to live in a house, you pay no matter what. I dont consider utilities, taxes insurance etc as taking away form anything, you have to pay those bills to live. The house will appreciate sooner or alter, they always do. That is what I meant by making money. You make it without doing anything other than something we all do…living in a residence.
As for comparing the stock market to real estate investing, it’s apples and oranges, but I know if I can pick one or the other, I’ll take real estate every time. Some might disagree, as is their perogative, but the stock market is too risky for me compared to the rewards. I feel you have much more control over your money investing in real estate, as long as you don’t run in with your eyes closed. From a leverage perspective, there is no comparison. But the people who want to invest in the stock market, if you think you can make money, go for it. It’s just not for me.