People often ask me why I invest in real estate, as opposed to stocks, gold and all the other options out there. I tell them that real estate, in my opinion, is by far the best investment strategy. And as the 32nd largest owner of mobile home parks in the U.S., I certainly practice what I preach.
So what’s so great about real estate?
The number one reason to invest is to make a return on your capital and time. Real estate has, historically, had a higher rate of return than stocks, bonds, and other negotiable instruments. I demand a minimum of a 10% cap rate on any property I buy. There is nothing in the rest of the financial world that makes 10% — even risky junk bonds only pay about 8% right now. So the first reason is money.
When you buy real estate you take title to a hard asset that is tangible and you can go out and touch it. When you invest in every other thing, all you get is a sheet of paper acknowledging that you own some intangible interest. I have a briefcase of stock certificates of bankrupt companies that a relative invested in during the 1920s. You don’t have those same issues in real estate (unless you buy shares in a REIT).
People don’t talk much about it now, but inflation has not gone away. It runs in cycles. There will come a day in the future when prices rise significantly. And when that happens, you have a hedge against the impact by having rental real estate. As prices rise, so does your rent. In fact, your rents are the ultimate
buffer as they re-calibrate for both inflation and changes in currency valuations. In a bad economy, like the U.S. is in today, having this protection is essential.
For many reasons, real estate has been a favorite of bankers for over 100 years. In fact, there’s no more standard loan than a first-lien position on real estate. As a result, there is available financing for buying real estate in a manner that other investments can’t offer.
For example, have you ever tried to get a loan to buy a business? You’re lucky if you can find anyone who will even look at that type of loan, not to mention the fact that the interest rate will be nearly double that of real estate and the down payment probably double or triple.
O.K., I’m obviously not talking about single-family homes here. But income properties still sell quite easily at the right prices. Why? Because they are income properties – they offer the investor an income.
And because financing is available, you can actually get paid in cash without having to carry paper.
Most income properties – especially the ones I deal in – are a basic necessity. You have to have housing. Real estate (with the exception of self-storage and marinas) is seldom a luxury. As a result, even during a depression like the one we’re in now, the demand is there to stay full. This is a very important point,
because non-essentials, in a recession, don’t sell at all. Go ask somebody who sells boats.
Owning and operating real estate is much simpler than any other type of business. There’s no technology to learn, no giant number of teenage workers to hire and train and manage, and no giant number of statutes to learn and worry about. Restaurants have the #1 business failure rate – real estate is at the bottom of the list.
No threat of technology ruining the market
The internet and computer have rendered many solid businesses into the garbage dumpster. For every Gates and Zuckerman, there are thousands of business owners who were put into bankruptcy by the technology shift.
The great thing about real estate is that there is no new advancement coming down the road that could ruin your investment. You can’t solve the housing crisis with the internet. In fact, the internet, via Craigslist and other listing services, has actually made real estate more marketable and successful.
Real estate is a great investment model. It is superior to the others. That’s why I invest in it and urge others to do so. I’m the 32nd largest owner of mobile home parks in the U.S., and if I didn’t believe in this stuff, I wouldn’t own a single one.
If you don’t currently own real estate, you should explore the possibilities.
