3 Reasons why Real Estate is King in investing!

A Recent study by The Motley Fool Investment company showed that real estate investment/ equity made up 80% - 85% of the average American net worth.

Of the people surveyed, those that owned real estate investments had a 70%-80% higher net worth than those that owned no real estate investments. 

This is a HUGE gap in wealth! 

There is no doubt in my mind that real estate is and always will be the king of all investments. Here are a few reasons why:

1) Cash- Flow/ Yield: Investment property yields cash-flow monthly indefinitely until sold. This is the main reason why most investors acquire real estate. Of course there will be some periods of vacancy and other expenses but cash-flow should be produced almost at all times. In addition to cash-flow the investor also has the benefit of equity growth, which they can use as they see fit. 

Studies have shown that real estate yields consistently out-performance other investment classes and are regarded as one the safest investment vehicles.

2) Inflation Hedging: Real estate returns are directly linked to the rents that are received from tenants. Investors include lease clauses for rent increases of 3% -5% per year. In other cases, rental rates are increased whenever a lease term expires and the tenant is renewed. Either way, real estate income tends to increase faster in inflationary environments, allowing an investor to maintain its real returns.

3) Performance/ Control: Unlike like stocks, mutual funds, index funds etc.. Real estate is one of the few investment vehicles that the investor can control his/her performance. Property value can be increased and directly influence an improvement in investment performance.

Take for example our client that wanted to make more money/ increase cashflow on their rental. Unlike stock and other investments where investors have absolutely no control, real estate investors can control their performance with action.

The picture below is a recent renovation of a rental unit. The unit below was rented for $900 per month for many years and the tenant was hoarding items.

We spent $20,000 renovating the unit and rented to a new tenant 1 week later for $1300. That’s a $500 increase per month. This translates to a cash on cash return of 30% per year. In addition to the increased cashflow, the property value was increased by $35,000.

This is the perfect illustration of performance control in one form. If you have not been investing in real estate you should start.

Feel Free to reach out to us with questions and share your thoughts!