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Updated over 5 years ago, 03/18/2019
Why Real Estate?
Hey gang,
Glad to be on this site and poking around learning all the information I can about REI, but this afternoon I just stepped back (figuratively, of course), and thought to consider the question: why real estate at all?
More specifically, I'm learning and becoming a wise steward of my own finances (after living care free in this respect for several years), but, in a funny way, seeing that movie The Big Short changed my conception about what money can do and the ways we can make it work for us (I know, somewhat bizarre - my friends left only with terror of Wall Street), so I was initially (and still am) researching stock market investments, but then I stumbled across this site. Now, because it seems so difficult to give some return on investment percentage for the active investor, i.e. someone who flips or buys and holds, why does real estate seem so appealing? To put it bluntly, how much money can you make in this business?
Thanks in advance for anything someone might have to contribute to this, it was sort of a wandering thought as I'm weighing potential other options.
JTM
The amount of money you make is effectively limitless. Look at people like Donald Trump. Real estate has so many aspects and business opportunities - way beyond just fixing and flipping. Real estate allows the creative use of resources and partnerships to create something. I got a business degree in college that was focused on real estate. We often discussed theory as to why people were interested in the business. Real estate is a limited resource - we can never have more or less real estate than what currently exists. Real estate is all about creating value - there is something rewarding and exciting about taking something, using your resources and network to make it worth more. Also, real estate, while very numbers based, is truly a people business. As humans, we love to interact with each other and love to help each other solve problems and meet our needs. Real estate is fun. For me, there is nothing else that gets me as excited. Do something you love and it won't feel like work.
1. Leverage
2. You have greater control of your investment than you do when playing the market
3. Investing in the market is speculative, real estate, when not based on assuming appreciation, is less so.
In my case it was either a new 911 or real estate. I was this close to buying a new Carrera.
Instead I bought a duplex.
Should have bought the 911.
Originally posted by @James DeRoest:
In my case it was either a new 911 or real estate. I was this close to buying a new Carrera.
Instead I bought a duplex.
Should have bought the 911.
Porsche: there is no substitute.
Did you by chance buy the duplex in 2006? Was it more cash flow negative than the Carrera? Inquiring minds want to know ...
Unless you invest in an REIT or something like that, then REI is really like running your own business IMO. Yeah, there are tons of folks that will tell you it is passive and all that (they are likely trying to sell you something), but at least in the beginning, it normally is not, not in my experience or observation anyway. Like running any business, you are more in control of your own destiny and create your own value more so than with something like buying an S&P500 index fund, which relies on forces outside of your immediate control to create value. Unlike many other businesses, though, Real Estate Investment is a well established business model (or a collection of several business models) that have been proven to produce wealth century after century. It is hard work, though. If you want passive, stick with stocks.
2005 maybe. It was horrible. Everything we did went wrong, even putting a property manager in charge and that cost us a small fortune. Even when it was empty it was causing problems, like the 24,000 gallons of water that went missing one month, etc. Even when we finally disposed of it, the sale kept going wrong. Whilst my wife was showing the eventual buyer the property, I was having a blazing row with the neighbor outside.
Damn thing was cursed.
Real Estate is the single most tax advantaged investment or business I have found.
One of the main reasons I'm involved in Real Estate is that I personally love the work. I pulled a 14 hour today and will likely work crazy hours tomorrow. But I closed on a rehab that will make me 30k in a matter of a few weeks, got an offer accepted on a 6 property package, picked out hardwood, appliances, granite, and paint on a high end rehab, I spoke with an investor over seas in Australia, I signed a JV with investors from NY, I got to play with my dogs whenever I wanted, and at the end of the day I'm in a great mood.
I still remember when I hated everyday but Friday. How I lived paycheck to paycheck. I would count down the days for months till I got to take my one vacation a year.
Now... I honestly have to check my phone to tell what day of the week it is. I get to spend time with the folks I love. I get to meet some of the coolest people in the world. Ontop of all that I'm making great money.
I looked into DOZENS of other businesses. Franchises, College, Motorcycle Repair, Music Teacher, Import/Export, Amazon, Ebay, and on.
After my first deal closed I've been hooked ever since.
Welcome to the site! Check out the podcasts!
the leverage behind most transactions."Most financially free people have made their wealth through or in real estate" is another favourite
real estate has intrinsic value. Even when our market crashes we still have value. stocks bonds and even precious metals all have value because people believe that they have value. Real estate will always have value because people will always need a place to live. The safety of real estate cant be matched by any other investment
Originally posted by @James DeRoest:
In my case it was either a new 911 or real estate. I was this close to buying a new Carrera.
Instead I bought a duplex.
Should have bought the 911.
Interesting, I had a similar thought. I want to buy a Lamborghini Huracan, they are about $250k. They are just a depreciating asset. If purchased new, you loose about 35% the first year and they drop maybe 15 - 20% per year until they are about 10 years old (based on what the Gallardo has done) and then sorta level out.
I decided to buy a property, which I will collect rent on for the next 10 years. Plus, probably some appreciation.
So my net worth will increase over the next 10 years from the property investment, as the car depreciates.
When my income producing asset meets my fully depreciated Huracan in 10 years, I'm sure they will get along nicely.
Hi Joshua
In business, it isn't what you make, it is what you keep. Real estate has several tax advantages, cost segregation and when an investor refinances a property, the proceeds are free from taxes. there is also a 1031 exchange where investors can sell their investment and purchase another investment and defer their cap gains.
The government recognizes that it can not provide housing at an affordable cost, so it gives investors these incentives to fill the void.
It is a business and constantly has to be worked, but one of the best ways to create wealth.
Gino
Thanks for the responses everyone. I mulled them all over, listening to more of the podcast in between my original post, and also came across that book everyone talks about on the podcast, Rich Dad, Poor Dad. That was game changer. I also met with an old family friend who I knew (but only vaguely knew) owned properties. I don't know if he's a 'big time' player in the area, but he and his wife have some 50 properties, so I think I might have found something of a mentor as well. In short, I'm totally in. Thanks for your feedback everyone, and I'll see you on the forums.
JTM
WOW! Haha. Somebody liked this thread today which brought it up in my feed. It must've been like my first or second post ever on BP. I was still mulling over real estate, hahahaha.
I don't do anything else these days, and @Ryan Dossey is even on here, who I'm likely to hire to take my calls soon! And @Gino Barbaro, who I've listened to on many podcasts. Thanks for the early input guys, really.
Now I can say, probably some 40 houses into the business between buy and hold, wholesaling, and brokering MLS deals, there is no longer any question that real estate is the best avenue. And, in response to my initial inquiry about returns, I would tell my 3 yr younger self to just shoot for that infinity symbol ;)
Lol. Thanks for liking this someone, really brings me back, and I'd say if you somehow stumbled across this because you may have been wondering about real estate, go in, go all in.
Best,
JTM
@James DeRoest Should've bought the 911.