Real Estate: The Best Investment Vehicle

Like many people, I always thought the best way to invest my money is to put it in the stock market and watch it grow.

If you watch the news, all the financial data is surrounding the trends in the market and how it’s driving the economy. We’re always being bombarded with how each company stock is doing as well as the general condition of NASDAQ, Dow Jones and S&P.

That’s all great, BUT there’s little talk about how we, as individuals, can benefit from different vehicles to invest our money - what does that really mean for MY financial freedom?

Where do most people invest their money?

Let’s take a look at how most of think should invest our hard-earned money so that we’re building a good nest-egg for our future especially our retirement:

- Savings account

o Most saving accounts through our banks and credit unions offer less than 1% return on our money annually.

- 401(K) and/or pension plans

o Most financial planners will tell you that an average rate of return on your 401(k) should be around 8%-11% annually. This is the number they use to calculate whether you’re on track for retirement (in 35+ years).

- Stock market

o Based on studies, 10-year average for U.S. stocks are around 9-10% annually. This number doesn’t take into account inflation deduction of 2%-3% which would discount your money power each year. You can read more about the S&P 500 market performance in this article.

- Savings Bonds

o On average, the returns for U.S. Savings Bonds is, generally, less than 3% annually depending on the product you choose. An alternative to bonds is to put your money in Certificates of Deposit where you’ll be earning a little more on your money, but lack of flexibility may deter many people from investing in them.

The truth is most of us haven’t done much research on other investment vehicles out there. We have always been told to invest your money in a “safe” place and continue saving for retirement in 35+ years.

My wake up call

Turns out I was wrong in the way I had always thought about investing. The more research I did, the more I learned about different vehicles that would allow me to achieve my financial goals as well as leading to my financial freedom rather quickly.

Admittedly, the most attractive investment vehicle, Real Estate, was right under my nose, but I never paid close attention to how it could bring me financial freedom. I had only thought about buying a home as a primary residence, but never as an investment vehicle to fast-track my financial goals.

If I knew then what I know now

My lack of eduction in real estate investing had led me to believe things that are just NOT TRUE.

- I had always thought investing in real estate was only for the rich – “there’s no way I can afford to buy an apartment building”

- Buying a property requires me to have a significant amount of my own cash to achieve

- Being is debt is the worst thing you can do

Many more limiting beliefs had clouded my judgement and thought process about investing. I had always allowed general public knowledge dictate what’s best for me and my future, but that changed when I learned about real estate investing.

Bottom line

There are many advantages of utilizing real estate as your primary vehicle for building wealth. I have found that diversifying my investment portfolio is certainly important, but the fact remains that real estate will continue to be my main focus for building my future.

Some of the drivers that make real estate a more viable option for investing are:

- Cashflow: When done right, the investment will provide regular cashflow for those who are invested in the property. Imagine receiving a payment on a monthly/quarterly/annually basis from your investment just by having your money working for you.

- Leverage: Purchasing real estate is usually achieved by leveraging funds to be able to close and operate a property. By securing debt on the property, you’re able to have tenants pay down that debt while you take advantage of other benefits.

- Tax benefits: There are many ways you can take advantage of the tax deductions on investment properties:

o Depreciation deductions from your property income

o Utilizing other property expenses (such as repairs, debt service, real estate taxes, maintenance, management, utilities, etc) as tax deductions from income

o Deferral of capital gains by using 1031 exchange

- Appreciation: Real estate values tend to increase over time. Coupled with paying down your leveraged debt, one continues to build equity in the property while operating it.

Learn more and Do more

When it comes to syndicating a real estate deal there are many nuiances and it requires a lot of work. The GOOD NEWS is that you don’t have to be the one doing the work.

Remember: one of the most important part of investment is educating yourself and knowing the risks (as well as benefits) prior to committing. There are many resources and professionals that can help with educating you on the subject but please be sure to do your own homework and due diligence.

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