Money Mindset

Money Mindset discusses the experiences and opinions of a middle-aged professional on the topic of money, including: financial planners, investment experiences, part-time income sources, real estate investment and private sales, web site income opportunities, changing professions, home office organization, money education for kids, and many other subjects I have experienced first hand or even just thought about.

Friday, January 19, 2007

Four Basic Reasons to Invest in Real Estate

Every time I see someone advocating that "Stocks are clearly better to hold than real estate", I have a reflex reaction in my mind that says, "If they thought about it in a different way, they could be much wealthier, with a much more secure position at any given time."

For example, in Ramit Sethi's blog "I Will Teach You to be Rich", I see a comment from a poster saying they think stocks are better to hold, but that the proceeds from real estate could be put into stocks.

One of the best ways I've seen it put is on the web site for Flagstone Properties, which summarizes Dolf de Roos' 4 questions to ask yourself when comparing Real Estate to stock based investments.

Basically, it explains why:
1) Real Estate is secure. Banks will lend you money to buy Real Estate, but not stocks or mutual funds
2) Gains in Real Estate are multiplied when you borrow on a mortgage.
3) The value of Real Estate can be manipulated by the investor much easier than stocks.
4) You can buy Real Estate at a bargain because of market inefficiency.

There are other good reasons, such as using home equity loans for downpayments means you don't need to save up the cash (ROI is again multiplied), and the interest costs on mortgages are tax deductable (they aren't in Canada for your principle residence, but they are for income properties).

To me, its a no-brainer. Your mileage may differ, but if I do my due diligence on the property and the people I use to manage, maintain, buy and sell, then I can't see a more secure or profitable investment.

- Scott

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