There are so many reasons why we love to invest in real estate! Here are just a few of our favorites:
Cash Flow Creates Income Right Away
I am not a stock broker or an expert on the stock market by any means, but I know a little about how stock dividends work.
It seems like the highest dividend paying stocks pay 4% or less annually. That is not a bad return compared to the .002% rate you get on your bank account, but it is also barely above inflation. It is true that stock could rise in value increasing the value of your investment, but that money is not realized until you sell the stock. Many real estate investors would not touch a property if it had 4% annual cash flow; they would want say 20 %, or more in cash on cash returns. The best part is that the 20% return would be realized immediately and the property may still appreciate on top of that return.
That 20% return can be reinvested into the property by way of paying down the mortgage, adding value to the specific property, or using the money to purchase more rental properties. The best thing about investing in real estate is the cash flow it produces and the many options that cash flow gives you, and continues to give you year after year.
Anyone Can Be a Local Expert on Real Estate
Look around you, it doesn’t matter where you live there are always real estate deals around. There are also so many types of real estate you can invest in: single family homes, duplexes, commercial property, and even vacant land. You have a huge advantage when you invest in real estate because you can invest in something in your own town. The stock market is a global system; everyone has the same information and knows exactly what the prices are (the exception is of course insider trading, which is illegal). However, it isn’t illegal to use your knowledge and connections to make money in real estate. We know the market where we live very well. We know a good deal when we see it because we know the neighborhoods and what the going rental rates are. There are only a handful of people in our town that know as much about our local real estate as we do and are actively investing. Score for us!
In contrast, with the stock market I am competing with thousands, maybe even millions of people with the same or more knowledge than I have. We all know basically the same information and prices are based on this information. In real estate I may be competing with a dozen people or less and at any one time most of them probably aren’t in the market to buy. This smaller buyer pool gives a huge advantage to the individual real estate investor.
It’s easy to find the value of Real Estate
Compared to other investments real estate is easy to value.
Even if you have no idea how to value a property, you can find a realtor who can value it for you at no cost. There are so many houses and pieces of real estate out there that you can use to compare and value properties. Those sold comparable properties may not always be an exact match, but they will give you a good idea of what a property is worth.
With stocks or other investments it is much more difficult to value. Even the experts argue about what companies are worth. The only people who truly know everything that is going in with a stock or company are the managers and owners of that company. They are doing everything they can to make it look as good as possible.
You Can Inspect Real Estate
When you buy a piece of Real Estate there is not too much that can be hidden.You are able to do an inspection on the property before you buy and thoroughly evaluate real estate before you buy it. You can’t do that with stocks.
You Can Buy Real Estate below Market Value
There are many ways to buy Real Estate below market value. I buy properties from the MLS (the database that real estate agents use) all the time that are price below market value. I can make a low offer or be the first one to make an offer on a property. Property can also be purchased off market if you know where to look. Off market properties create a huge advantage for the individual investor, because an investor can buy property well below market value without virtually any competition. As far as I know, there are no ways to buy a stock below market value. There may be undervalued stocks, but the price is still available to everyone in the market.
You Can Add Value to Real Estate
Not only can you buy real estate below market value, but you can add value to it after you purchase it.
One reason I can buy properties below market value is they need repairs. Investors typically get a discount when they buy a property that needs repairs because it decreases the buyer pool. Not everyone can buy property that needs repairs, because they may not be able to get a loan on those houses.
I can buy a house below market value, put $20,000 of repairs into it and have a house worth $50,000 more than I bought it for a couple of months after I bought it. You can also add bedrooms, add bathrooms, finish a basement or do many other things to increase value on real estate. It simply is not possible for an individual investor to add value to stocks.
Why do you invest in real estate?