Why invest in real estate??

[ThaCarter]

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

[wricg]

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!

[evergreen]

You forgot the tax incentives :D

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.

[JaredfromIndiana]

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!

[WilsonTaylor]

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

[molarband]

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.

[Pip]

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...

[evergreen]

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

Actually, I did :D

[Dan732]

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.

[Bluemoon06]

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.

[evergreen]

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.

[Dan732]

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.

[evergreen]

Owning some stock is not too bad but

1. 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.

2. You can't take out a loan against your stocks that I know of.

3. You can't live in your stock.

4. While you own the stock you are not getting excellent tax breaks.

5. If the value of the stock is $10, you are not going buy it at $8.

6. Can't buy stocks no money down. This all goes back to point #1.

7. 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.

8. 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 :D

9. 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.

10. 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.

[Dan732]

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.

[evergreen]

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.