Real estate has been an incredibly hot investment over the last several years. The number one subject that I speak the most on is Real Estate. Working in a real estate investment firm, I am immersed in the market. Over the last few years, I’ve seen people succeed and I’ve seen people burn in real estate investing.
Why Has It Been So Hot?
With the housing market boom over the last several years, people have seen incredible returns in their real estate portfolio. The cable channels are flooded with shows about ‘flipping houses.’ We see every day people making six figures with what seems like minimal work.
Because of all this, real estate looks to be a safe, secure investment. We see people like Carleton Sheets and Robert Kiyosaki that have supposedly made millions from real estate. Everywhere we turn, we see people making money in real estate.
What’s The Truth?
We constantly hear reports of people making ridiculous returns on their investments, however, what we don’t hear is how many people have lost their shirts playing the same game. Real estate investing can be incredibly risky unless you are very well informed. People like Carleton Sheets make more money selling their programs than from actually practicing what they preach. Everyone may be in real estate, but everyone isn’t making money.
Try This With Your Stock Broker
What would your stock broker say if you brought him $10,000 and wanted to buy $100,000 in Google. Even with an aggressive margin account, that would never be happen! Here the great thing about real estate, that same scenario happens every day! In fact putting only 10%-20% down on a property is the norm. In real estate, you get the benefit or using other people’s money.
Real Estate Is Tangible
One reason many people prefer to invest in real estate over equity markets is that real estate is tangible. You can touch it. If you own shares of XYZ company, the best that you can get is a quote on your screen. I like being able to drive to a house and say that I own it. It makes me feel more secure. I feel like I have more control when I can reach out and touch something physical.
Less Risk = Greater Return
When done correctly, you can achieve much better returns in real estate than you can on wall street without additional risk. In fact, I would argue that you can achieve better returns with less risk. Try getting insurance on your stock portfolio. It will never happen because insurance companies know that real estate is a much safer investment.
It’s Not Rocket Science
The last and the best advantage of all is that you don’t have to be a Warren Buffet to make good money in this ring. When trying to make money in the stock market, you need to understand technical and fundamental analysis techniques. You need to understand things like inventory turnover, daily sales ratios, bollinger bands, and historic trends.
In real estate, it’s a much simpler process. If you have a good real estate agent and you can understand a basic financial sheet, then you are set. A good Realtor can help you with everything else.
Get Rich Quick (or not…)
Real estate can be a very good investment if done properly. But here’s the caveat: real estate is a long term investment. That doesn’t mean that you have to hold the same property for 60 years, but it does mean that you shouldn’t go into it expecting to make a small fortune overnight. The majority of the time, people that are making serious cash in real estate either had a lot of money to start with or they’ve been systematically investing for many years. Real estate is not a get rich quick game.
If you would like to make a comment, please fill out the form below.
To play devils advocate:
“What would your stock broker say if you brought him $10,000 and wanted to buy $100,000 in Google. Even with an aggressive margin account, that would never be happen!”
This does happen every day. Look into the options market. You have 1:100 leverage. A small amount of money can control a huge amount of stock. (With a huge amount of risk of course…)
“Try getting insurance on your stock portfolio. It will never happen because insurance companies know that real estate is a much safer investment.”
Again, look into the derivates game. Options are specifically intended to provide insurance on stock. Read up on covered calls, collars, etc…
“When trying to make money in the stock market, you need to understand technical and fundamental analysis techniques….”
Or, you could go out and buy a low-cost index fund from a large investor-owned shop like vanguard. You don’t need to understand any of the above to understand that stocks go up in the long-term and buy into the market. I certainly would trust my financial future with the Vanguards of this world over a realtor in a slick red jacket trying to make 6% and his end-of-month quota anyday.
Evsh,
Thanks for you comment.
“This does happen every day. Look into the options market. You have 1:100 leverage. A small amount of money can control a huge amount of stock. (With a huge amount of risk of course…)”
I appreciate your point of view and I understand exactly where you’re coming from. I understand options. I play with them a little and I have a partner that trades them extensively. There is a lot of money to be made in options, however, like you said, the risk can be tremendous. I am looking at real estate as a much safer way to achieve the same goal.
“Again, look into the derivates game. Options are specifically intended to provide insurance on stock. Read up on covered calls, collars, etc…”
All very true. But most ordinary investors don’t have a clue on how to cover their tails by hedging their investments. But, you are right that there are ways to insure your equity investments.
“I certainly would trust my financial future with the Vanguards of this world over a realtor in a slick red jacket trying to make 6% and his end-of-month quota anyday.”
Haha, I guess a lot of Realtors are viewed just above a used car salesman. (And I know several Realtors that fit the stereotype very well) But this is what I am talking about in finding a good Realtor. For instance in my firm, when an investor purchases a property, we are generally the ones who manage it. There is some accountability there. If we sell him crap then we have to manage the crap. If we can’t make it work, then its back on us. We have a vested interest in really helping investors instead of trying to make a quick buck and sending them out the door.
My point isn’t that you can’t make money in other places; my point is that real estate is generally a safer way to achieve the same goal.
Jeremy-
Thanks for responding. I certainly agree that there are many venues in this world to make a buck. I was playing a bit of devil’s advocate.
“But most ordinary investors don’t have a clue on how to cover their tails by hedging their investments.”
This is exactly why I thought I’d bring it up. Many people probably read your post and said “wow, the tables are stacked against me in the stock market, so instead I’ll put all of my money into risk-free real estate”. There is always risk when any kind of return is involved. And hopefully you and I did a bit of educating on both sides of the coin…
Great job, keep ‘blogging!
Evsh
Thanks for your input. I’ll put some of this on my list to write about in the near future