This post is about the 7 reasons to invest in real estate. I cover my personal exploration, goals, and why I decided on real estate rather than stocks.
The world of investing is vast. There is an endless span of opportunities from virtually risk-free investments (such as bank savings accounts and personal CDs) to hyper-aggressive and somewhat speculative hedge funds and commodities. I personally did not choose a career that earns a high income bracket, so bank savings accounts and personal CDs are not for me. Likewise hedge funds and commodities are not only too expensive but are also too risky for me to invest in.
“A perfection of means, and confusion of aims, seems to be our main problem.” -Albert Einstein
Real Estate as an Investment
Real estate, on the other hand, makes sense to me. It accomplishes my objectives and I can afford to get in the game. As such, I can speak about the benefits of investing in property with confidence. Regardless, I believe that there are some underlying principals that are applicable to the entire universe of investing regardless of the specific techniques, asset classes, investment vehicles, and strategies. These principals need to be respected by anyone who aims to become an investor.
The Definition of Investing
First of all, I define investing in the following way:
Investing is a long-term, actionable plan of asset acquisition and/or formation for the intended goal of financial gain, which is based on the skill set and knowledge base of the individual investor.
Robert Kiyosaki likens investing to travel, a comparison that I find quite compelling. Say you want to make a trip from New York to Los Angeles. You would have several options available to you for travel. Each would have their own pros and cons. If the cost of the trip is not an issue for you, but you need to get their quickly with maximum comfort, then you could consider chartering a jet. If, on the other hand, you are a budget-conscious traveler like yours truly, you could fly coach, which would be both less expensive and less comfortable, but would still get you to your destination within the allotted time. If working with a very limited budget, you could travel by bus. True, this would take much longer and would likely be very UN comfortable, but you would still eventually get to your destination which was the ultimate point, after all. But if your destination is one that requires you to cross an ocean, then your options just became fewer and likely more expensive whether you like it or not. Nothing that rolls on wheels will do.
How to Determine Your Investment Vehicle
So you see, you must first determine your needs, financial situation, and options before can you make the best decision relative to your travel plans. You may have to compromise. For example, flying is the preferred way to travel for many people, but you are not able to afford the ticket, you may have to resort to a less convenient option.
Similarly to travel and life itself, at least according to Dr. Seuss, investing is a balancing act. It is a strategy of accomplishing certain objectives within the framework of given limitations. It is an action plan that will take you from where you are to where you want to be relative to your finances.
Plan Based on Knowledge and Skills of the Investor
Most investment strategists and bankers would likely agree with this basic premise. Where I part ways with them is in the latter portion of my definition. I believe that the investment plan needs to be based on the knowledge and the skills of the individual investor. This is to say that a true investor takes ownership and full responsibility over the process and the outcomes, and does not look to delegate his responsibility to a financial advisor or a broker.
For their part, these institutional brokers and money managers have argued that the average “investor” simply doesn’t possess the vital knowledge to be successful in the market place without their assistance. I AGREE; the average investor does not! Average investors lose; only professionals make money consistently over the long term. This further validates my assertion that education is the key to investing!
Education is the Key to Investing
I have no idea how Wall Street works – this is why I did not choose to pursue this avenue of investing. I know my abilities and my limitations. Having done my research I quickly established that the stock market is too complex for my brain. Furthermore, I have come to believe that it has been made so complex for the express purpose of making it incomprehensible to people. I can see clearly, however, that this works quite well for the “professional advisors” who are being paid consistently and without fail to invest the money of others. This may work for them, but not for me!
Better than Average Investment Results from Stock?
When considering stocks I quickly concluded that the only reasonable ways to get involved would be either through the index funds, or by purchasing dividend-paying stocks. I chose otherwise because index funds are set-up to track their respective segments of the market, which necessarily means that I could never beat the market – I would be the average more often than not. That is the world most “investors” live in, but I wanted better than average results, with more consistency and less volatility than the index funds could provide. And while dividend-paying stocks are a viable way of generating passive income, I could not afford to buy enough of them to have an impact.
Real Estate Investing for Passive Cash Flow
Thus, allow me to tell you my version of investing. In the introduction to this blog I stated that I will be retired by the year 2025, with $20,000 of monthly cash flow to live on. These are steps one and two in the process of making a plan; I figured out the precise amount of money that I will require; and I decided on a specific timeframe. Step three involved deciding on the investment vehicle. You already know why I didn’t pick the stock market; now let me tell you exactly why I picked real estate. There are seven reasons:
1. Passive Cash Flow
Real estate offers Passive Cash Flow.
2. Appreciation
Real estate benefits from built-in Appreciation, due to Scarcity and Inflation.
3. Leverage and Other People’s Money
Real estate investment market is accessible due to Leverage and OPM (Other People’s Money).
4. Inefficient Market
Real estate is an Inefficient Market, offering a skilled investor More Control over the investment returns
5. Cash Flow Growth Potential
Real estate offers Infinite Cash Flow Growth Potential.
6. IRS Friendly
Real estate is the most IRS friendly investment vehicle.
7. Education is Readily Available
Real estate Education is Readily Available, although it can get expensive.
I will discuss all of the above in greater detail in my teleseminars. For now simply understand that for the above stated reasons I felt and still do that real estate is the best investment opportunity for a self-starter investor. And once it was clear to me that real estate was the way to go, the rest of it was a matter of education, determination, and discipline.
Conclusion
So you see – for me investing is not some glamorous experience like you see on the big screen. I’m not trying to be the high-flying Gordon Gekko from the 1987 film Wall Street – it is much more mundane and routine than that. Let’s face it. Life is not a reality show. Cashing-in your 401k and using the money to flip a house like they do on cable TV is just plain stupid in my opinion, because without the proper knowledge you will loose. Throwing money at your 401k or IRA in hopes that it will go up is not investing either – that’s just a gamble. Not that a few people don’t get lucky once in while.
In my world, investing is a logical and well thought out plan coupled with the discipline to see it through. And since the execution of this plan depends on the extent of my expertise, I continue to educate myself.
You can find out more about my Cash Flow Freedom University here to learn more >
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