Why You Should Invest in Real Estate

Copyright 2006 Ron LeBlanc I am always amazed when I talk with people about investing and real estate. I was at a resort recently with my family and struck up a conversation with a woman about her experience with the resort. As we chatted she mentioned that she was a realtor. I asked if she did her own investments, and to my amazement she said "I wish I could, but I have my money tied up in funds". I almost drowned in the hot tub! Here is someone who facilitates deals for people in real estate (assuming she has ever met an investor), and she would rather earn 2-5% (maybe) per year on her money. Wow. I hardly know where to start. I think the most exciting things about real estate investing are leverage and control. Let me first discuss leverage. How much interest in a mutual fund can you get for $10,000 ? $10,000 worth would be the correct answer. Options aside, how much stock can you purchase for $10,000 ? $10,000 is again the correct answer. How much real estate can you buy for $10,000 ? How about $250,000? I've done it for less. Now let me ask: When you have $10,000 in stock, how much do get appreciation on? $10,000 - this is easy! How about if that mutual fund goes up 5%, what do you get 5% on? $10,000 again! Now what if that $250,000 house goes up 5%...you get $12,500 in appreciation. That's more than your initial investment. Now let's look at involving OPM - other people's money. Is there anyone at a bank that would lend you $10,000 to buy stock? I doubt it. Is there anyone at a bank that will lend you $10,000 to buy a house? You bet there is! Lenders are tripping over each other to lend you money. How much mortgage related junk mail do you get every day? So, not only do you get appreciation on much more than you spent, but you have people willing to lend you the money to do it! What could be better than that? How about control or knowledge. When you buy stock in a company, what can you do to make it go up or down? Not much. I doubt you could buy enough product to affect the stock price of any public company. What about with real estate? What can you do to affect the market price of your property? Plenty! You can really affect a market, but you can do a lot to a property yourself. When you buy a stock, do you have any idea if that stock will go up or down? Not really. Hopefully you study a company and pick one that you think will do well, but there are no guarantees. Phrased differently, do you have any idea what that stock will be worth 3 months from now? Absolutely not. How about a property you buy - do you know what it will be worth in three months? You better have a good idea! You can run a market analysis or get an appraisal any time you want, and most markets don't make radical changes in three months, so you can have a pretty close idea what a property will be worth in three months. That investment is under your control, because you can fix it up, add to it, or even scrape it and add another building. When you add up leverage, control and predictability, real estate comes out shining as the best investment vehicle. Of course I would never recommend it be your only investment vehicle, but you are missing out on a huge return if you are not investing in real estate.