I like real estate a lot. Warren Buffet said his home was the best investment he ever made. Most likely more for the wonderful family memories, but also because there is something awesome about real estate investing. It may not be the best investment in terms of pure numbers, but it has certain unique advantages over other asset classes. I like the tangible physical aspect of real estate investing. It is good to own a stock and therefore a small slice of a companies future profits, but this is a number on a computer screen and you have absolutely no control over the future of that company.
Real estate is a ton of work and time, but I have worked on several real estate investments over the last decade and in hindsight, it was a very rewarding experience for many reasons. I am not saying it was stress free, but rewarding after the time, money and effort were invested. I also like the social concept of improving a property to improve the quality of that particular neighborhood.
Advantages of real estate investing:
1. You can make a profit without selling the investment. The underlying investment retains it’s value while you collect monthly cashflow.
2. It’s a tangible asset that one can add value to through “sweat equity” and improvements. You have way more control over the destiny of the property vs. the inner workings of a company you own stock in.
3. Tax advantages of depreciation over time.
4. Rents tend to steadily increase over time, increasing the cash flow over time.
5. Expenses are tax deductible.
6. As the loan is being paid down, generally speaking the value of the property goes up.
7. Real Estate investments are generally considered a hedge against inflation. As the price of everything goes up over time, an investors fixed rate mortgage payment stays exactly the same as day one 10, 15, 30 years prior.
It takes time to make money. I do not believe real estate is a get rich quick thing, I think it is a good long term investment if you focus on improving the subject property and cash flow. It is also important to be in tune with your local market and the sub-market within. I have always chosen to invest near my home in a neighborhood I am familiar with. I have a sense of the economy, the demographics, the schools, the development, the access to jobs and infrastructure, the culture etc. I believe all these things factor into the property. I also like the ability to keep an eye on the property. It is a physical thing that needs care and feeding to thrive.
Keep in mind you are providing a very important “product” and service to people, a place to live. I take pride in providing a clean, well maintained and high quality product to my tenants. A place where people can rest, eat, learn and spend quality time with loved ones.
There are more ways to gain exposure to this sector now than ever. You do not necessarily need to become a landlord and handyman. There are hundreds of Real Estate Investment Trusts and other vehicles to gain a share in the real estate world, although these may not have all the advantages described above.
I will talk a lot about real estate in future posts and crunch some sample numbers. In the meantime, what have been your experiences with real estate, the good, the bad and the ugly?
This is not intended as advice for any of individuals particular situation. Informational only.