Are you Only a Real Estate Investor?

[Brandon Proctor]

Good afternoon BP!

So I attended this free financial seminar last night at my local church and the speaker mentioned on many accounts that he invest in RE.  He also says he dabbles in other ventures such as stocks, gold and silver and IRAs.

I was wondering if many other investors thought this way as well, investing in other assets other than real estate.  I was thinking what he does doesn't sound like a terrible idea but at the same time I figured that being invested in so much could turn sour.

Insight please.

[Mike H.]

I don't see any reason to invest in anything other than real estate. I simply can't get the numbers to come close - short and long term.

One thing I like about real estate is that I make money I can spend today and I make even more money as time goes on. Rents go up. Principal gets paid down. House prices go up (historically speaking obviously - and over the long run).

I think it also depends on your model. But, for me, I can get into a 135k house for 5 to 6k. In 20 or 25 years, that house is likely going to be worth 270k, will be paid off, and will be making me about 1,500 a month in cash flow. And during those 20 to 25 years, that house may be paying me 2k to 3k a year in rental profits that also happen to be tax free. 

And thats not expecting some miracle or some crazy price appreciation thing that typically only occurs on the coasts. Thats just bread a butter house deals here in the midwest in decent areas.

Now show me how I can do that with any other investment of 5k to 6k and maybe I'll consider it. Until then, why in the world would I ever do anything else? Diversify? 

There are two worst case scenarios for a buy and hold investor.
1) Values go down. If that happens, it typically means something really bad has happened in the economy. When that happens, more people become renters so the homes still cash flow. 

2) Renters disappear because they can all buy houses. That did happen during the boom period recently. If it happens, that typically means the price of homes shoots up because everybody is buying. So worst case is that I sell and make a ton of money on the houses but not as much as the buy and hold.....

Those are the downsides to real estate if you buy right. Either rents go up and prices go down. Or prices go up and you sell because there aren't enough renters. Either way, you shouldn't lose your shirt provided you have that cash flow as your base.

And I'm sure that there are some other doomsday scenarios (i.e. interest rates of 10% might really ding me given I have over 20 5 yr balloon loans).  But I'll take those risks over the stock market risk or any other investment - any day of the week.

Like any other business on the planet, there's going to be risks. But I'm an absolute believer that the risks in real estate for buy and hold investors doing it the right way (cash flow instead of appreciation) are as safe as any other investment around..