Real Estate vs Paper Assets
Real estate investing is better than investing in paper assets
Yes it is! And here are 10 reasons why we think it is much better to invest in real estate than in any other investment vehicles—they are the reasons that WE invest in real estate.
- In Real Estate, we can insure our property for its full replacement value against loss. We cannot insure paper assets against any type of loss.
- In Real Estate, we can put $20,000 as a down payment to buy a $200,000 property and get $180,000 from the bank. We now own $200,000 of assets. If we put $20,000 into paper assets, we get only $20,000 worth of assets.
- If the value of our $200,000 property increases by 5% in one year (which is below average for many of the areas we invest in), we are $10,000 richer. The interesting thing about this is that even though 90% of the money to buy our property came from the bank, we don’t have to give them 90% of that $10,000. It’s ALL ours! Now, if our $20,000 paper asset increases by 5% in a year, we’re only $1,000 richer.
- The bank will loan us a lot of money to buy property—millions if we want to buy an apartment building or a commercial building. That’s using OPM—Other People’s Money—at its best! We can also go to mortgage agents, hard-money lenders, etc. The bank will NOT loan us a penny to invest in paper assets. And forget mortgage agents and hard-money lenders. We have to use our own money to buy paper assets.
- Certain types of properties will generate cash flow—called passive income—which can be taxed at a much lower percentage than earned income. We can’t get cash flow from paper assets (unless a mutual fund pays monthly dividends). As with all income, you must check with your accountant to find out how things will work for you.
- Though we have no control over the real estate market as a whole, we have control over the “value” of our property—which we can increase by making minor improvements, doing major renovations, and keeping full occupancy. We have NO control over the stock market or over the management of our paper investment; there’s nothing we can do to increase the value of our paper assets.
- There are all types of depreciation and expenses we can legally use to reduce the income from our real estate investments. For example, when we travel to other locations to look for property to invest in, or to inspect properties we own, those travel expenses are a legitimate tax deduction. Try to do that with paper assets!
- Real estate is REAL. We can drive by it and see our investment. We can live in it. We can paint it. We can add an extension to it or plant a tree in front of it or add a patio behind it. Paper assets are just that: pieces of paper.
- We can form partnerships with many other investors—family, friends, or associates—and together we can buy big properties that will yield remarkable returns. Just imagine going to family and friends and say “Hey, let’s pool our $50,000 together so we can buy a whole bunch of shares of Software Company X or some petroleum company…”
- But most of all, we invest in real estate because it provides a roof over people’s head. And it allows us to give people with past credit problems another chance to own a home or live in a safe and sound environment. It’s a great feeling, a feeling we can’t imagine getting from calling a broker and buying a bunch of stocks.
There are more reasons why we prefer to invest in real estate ourselves, but those are the 10 main ones.
"I've gotten to know Daniel over the last few years in a business context. During that time I've noticed that he is a man of his word and consistent in what he does. I'm a little surprised at times at the things he commits to, but true to his nature he is able to do what he commits to, overcoming whatever âobstaclesâ he encounters along the way. He always seems full of energy and life, even when things don't appear to be running as smoothly as planned. It's been a pleasure to work with Daniel and I think I enjoy his off the wall humour the most."
John R. Walsh, B.Eng, Mortgage Agent with Mortgage Alliance Partners