It has now been two years since I began investing in real estate in 2006. I’ve now acquired 3 different properties totaling 9 units, and after pouring a few dollars exclusively into real estate, I sometimes wonder if I should consider other investment channels as well. I’ve considered investing in the stock market, starting a small business, or even acquiring another business.
Although I plan to start adding more money to these investments, I still find it difficult to validate their performance compared to real estate. In short, I believe real estate is better than any investment I’ve ever made. I would like to share why I think this is true.
Reason #1: You can buy many dollars’ worth of property with only a small amount of cash. There’s no other appreciating asset that allows you to purchase that asset with only a small down payment. For example, if you wanted to buy a $100,000 rental property, you would likely be required to put up only 20% (or $20,000) of this amount as a down payment. The bank would likely be happy to finance the additional portion of this for you. Some lenders can find ways to lend you up to 100% of the purchase price!
Banks lend on property because it’s a relatively safe investment. Think about it: how many loans did banks make during the last few years to homeowners who are now in foreclosure? Some of those homeowners should have never been able to get loans, as they didn’t have the financial strength to sustain the payments. However, banks made these loans anyway, not only because real estate prices were appreciating fast, but because real estate is safe compared to other investments. How many banks would lend you 80% to buy stocks, bonds, or mutual funds?
I will discuss other benefits of real estate in upcoming posts. Please feel free to add a comment.