Real estate has always been and always will be the greatest vehicle to wealth. There is no disputing that the wealthy either have made their money in real estate or hold their money in real estate.
Here are three reasons you should invest in commercial real estate:
Cash flow: Commercial real estate is the cash flow king. That means you get paid every month while you own the asset because the money left over from the rent you’ve collected is more than the expenses you’ve paid.
With stocks, you simply hold and hope for a rise in value; however, with real estate, you get paid every single month while you expect a rise in value. There is a reason people say cash flow is king; it’s because passive income generated from real estate cash flow is life changing. It’s what gives you freedom.
Few other investments provide financial freedom like real estate investments. When you buy a stock, you hope for a return based on the company’s future appreciation.
Wise real estate investors never bet on appreciation, though. They purchase properties on sound analysis that the property will generate more income than it costs to own.
When you buy real estate, not only do you hope, but you definitely expect the asset to appreciate in value since all economic markers over the last hundred years predict that it will.
The difference is that with real estate, you get paid every month while it happens. The stock market might average 7% to 10% in gain per year. Properly purchased commercial real estate averages 15% to 20% returns annualized over the life of the deal and much more in some cases.
There is just no comparison. We’re not talking about single-family home appreciation here. We’re talking about multi-family apartment complexes or retail shopping centers.
In addition to your cash flow, there are numerous other ways your real estate will provide you with returns. You can take phantom losses called depreciation, which off-sets your tax liability, allowing you to make money with cash flow but at the same time taking a loss on your tax return all while your property is appreciating in value over time. Cash flow is king, and real estate delivers.
Control: When you buy real estate, you have control over your investment. You have a tangible piece of property you have control over. When you buy a company’s stock, you have absolutely no control at all; you just roll the dice. Stocks typically have a lot of volatility, are dependent on company executives making good decisions you have no control over, and are fickle to even slight movements in the economy.
With real estate, you have direct control over increasing income, lowering expenses and finding creative ways to improve value. Real estate is also less susceptible to external events happening within the economy.
With real estate, for every dollar of income you increase, you increase the value of the property around $13, and for every dollar you save, you also increase value around $13. There is no other investment on planet Earth with metrics like this that work consistently over and over and over.
Leverage: If you want to own $1,000 worth of real estate, you have to spend around $300. If you want to own $1,000 worth of stocks, you have to spend $1,000. I’m not talking about stock options where you simply have the right to buy or sell a stock at an agreed upon price, I’m talking about actually owning an asset.
Leverage is key to building wealth and there is no greater way to leverage your money than with commercial real estate.
The single greatest mistake in buying real estate is not buying it. The second greatest mistake is not buying enough.
Victor Whitmore is a successful entrepreneur, real estate mogul and principal owner of Precision Equity, a privately held Tulsa real estate investment company with a $100 million commercial real estate portfolio.
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