Hands down: Real Estate is the Best Investment You Can Make Long Term!
Hello Aluxers, today we’ll be breaking down why real estate is and has been the go to investment for building wealth.
For centuries, those who controlled land and property have been historically the richest members of our society.
This has not changed!
By the end of this one you should have a clear understanding of how wealth is built through real-estate and why the rich always have some part of their portfolio invested in land and buildings.
If you don’t feel like reading the entire piece, feel free to watch the video version:
Keeping the intro short, here are 15 reasons why Real-estate is the best investment to make you rich:
1: Store of value
Historically, the real estate market has outperformed goal in terms of store of value and returns. Expectations being the events post 2007, but even then smart investors have picked up properties with a discount.
Real estate is one of the safest investments one can make, because the value of properties very rarely go down and even then it’s only for short periods of time.
You can rest assured that the value of your property doesn’t get devalued as more buildings rise up, unlike fiat currencies like the US dollar, which drops in value every time new money gets printed.
You want your value to be safe generations from now? BUY LAND! BUY BUILDINGS!
2: Natural Appreciation
1. The population is constantly increasing.
2. People need places to live and do business.
3. Most businesses are concentrated in hotspot cities.
These 3 drive the demand for housing up constantly, thus increasing the value of a property owned.
The average home, everywhere in the world, appreciates in value by 3% per year.
The trending markets are seeing even more rapid growth. For the past decade, central real-estate has appreciated on average by 6% per year, effectively doubling in value every 10 years or so.
Not only does real-estate maintain its value in time, but it grows your value for you, due to the constant increase in demand.
3: Forced Appreciation
On top of natural appreciation, there are options which you can use to drive the value of the property up by yourself.
Forced appreciation is increasing the property value through direct efforts & investments into the property.
Replace the windows, put a fresh coat of paint, fix the roof, add solar panels, insert technology, interior design.. All are tools that can force the value of a property to go up.
This is the main reason why the entire house-flipping market exists. People find properties that are in poor shape, maybe undervalued, force appreciation on them and sell for profit.
Now only real-estate in a solid asset, but you can actively build it up to be worth more if you choose to making real estate one of the best investments.
4: Tax Benefits
Governments really like real-estate investors and they treat them differently when it comes to taxation.
Real estate investors pay less tax than almost any other citizen!
Why? We provide housing for the general population & increase value by developing land. This is why real-estate investors are called DEVELOPERS.
Here are just some of the tax deductibles you receive as a real estate investor:
1. Depreciation deduction from income.
2. Mortgage interest tax deductions from income.
3. Cost of repairs, maintenance, and upkeep
4. Cost of services (rental property management & legal consultation or services)
6. Travel costs associated with the property – like checking in on your property for business purposes
7. Property tax deductions
No matter where you live in the world, you’ll find that governments treat real-estate investors better than small business owners or the rest of the citizens.
5: Passive income for life
This is probably our favourite point and if you’ve been an Aluxer for some time you’re already familiar with cash flow and earning passive income from properties; which is why we’d like to put it in a different perspective:
Own an apartment in Manhattan or Paris, that’s rented out and as of making this video you can live for the rest of your life from that single rental. We personally know people who’ve done this and relocated full time to Asia.
People need central housing, and there are no new apartments built in the centre of cities – even when they do, they’re ultra-expensive and out of the reach of the average person specifically because these projects are reserved for other real-estate investors.
There will always be demand for quality real-estate and people are willing to pay the high-rents because the alternative is to waste up to 2 hours every day in transit from the edge of the city.
Real-estate is the modern day version of an oil rig in your back yard working 24/7 to make money for you.
Here’s a fundamental lesson for you from one of the greatest investors of all time: Warren Buffett:
If you don’t find a way to make money while you sleep, you will work for money until you die!
We made a dedicated video on the best books on real-estate investing which you can check out below:
We’re getting down to the top 10 reasons why real estate is the best investment!
6: Market Cycles
Believe it or not, experienced real-estate investors love market cycles, they love it when the market goes down, when property prices drop. Why? Because they can buy more for cheap.
While everybody is freaking out, while the economy is struggling, that’s when the investors come out to buy and they buy as much as they can.
If somebody offered you to sell you a brand new Ferrari that you know is worth $300,000 for only $100,000, knowing that all you have to do, is keep the car in the garage for a couple of years – maybe drive it now and then – and you could sell it for twice that amount if you wanted to… wouldn’t you make the deal?
Real estate enjoys similar market cycles to the stock market and as of making this video right now, we’re about to enter a downturn for the market. Those of you who have the funds, get your wallets ready!
7: Price Range
A big issue most people have is that real-estate is not accessible, that it’s too expensive. Yes it’s expensive if you look at real-estate in Manhattan or Paris like we mentioned earlier, but move a bit to the edge and prices begin to drop considerably.
You can buy a beach side 1 bedroom apartment in Tbilisi, Georgia for 20,000 dollars. You can buy a 3 bedroom apartment in Spain for 40,000 Euros, Zillow is filled with $60,000 dollar homes up for sale.
And here’s a brutal truth for you:
If you’re unable to make $50,000 to invest in a property, the investment life isn’t for you!
On the other side of the spectrum, you have mansions, castles, residential complexes, shopping malls and office buildings.
There are options for everyone, you just have to look!
8: Fairly easy access to funding
Anywhere in the developed world you have access to banks. Banks provide credit if you’re employed and prove that you have the means to pay back the money.
It’s never been easier and cheaper than it is today to have access to capital. Many governments are offering preferred interest rates when it comes to buying a home. Learn about these programs and take advantage of them.
In some cases there’s as little as 5% money down on a credited investment backed by the state and everybody has access to these types of crediting programs.
Don’t complain about the game being rigged if you don’t take the time to learn the rules of the game!
For most people refinancing seems limited to getting another credit to cover a previous credit.
Real estate investors do that as well, when interest rates drop, they go to a different bank take out a credit, pay for the previous one and now pay less than they used to, keeping more of the rental money in their pocket.
But refinancing can do more for you if you’re smart. Let us explain it through an example.
You search the market and find an undervalued property worth $100,000 that you’re able to buy for $80,000. The thing is, you only have $20,000 so you borrow the remaining $60,000 from a bank.
Instead of going for a quick sale, you invest $5000 more into fixing up the place and getting a quality tenant to rent it.
You now go to a different bank and ask them to refinance your house. They look at the property, at the rental income it’s generating. And they offer you up to $130,000 in financing.
You pay the $60,000 to the previous bank and are left with 70,000 dollars cash on hand. To buy 2 or 3 more properties.
This is the simplified method of building wealth through BRRR: Buy, Rehab, Rent, Refinance and it’s how most beginner real-estate investors get their portfolio started, proving once again that real-estate is the best investment.
10: Other people pay for your investment
But let’s say you don’t want to do all these financial acrobatics and instead want to settle just for ownership. All you have to do is to make sure the income coming from the rental property is greater than the mortgage + supportive expenses.
Here’s how the math breaks down.
You put down 20,000 dollars for a 100,000 dollar property, with the remaining 80,000 mortgage for 30 years.
The property rents out for 1200 dollars per month.
Your expense are:
Mortgage $350 a month, utilities, insurance, repairs, management & vacancy lets bundle them up to $650, totalling $1000.
This property has a cash flow of $200. For the next 30 years, it will put $200 every month in your pocket while the tenant will be paying your mortgage and other expenses, effectively buying you a property & maintaining it. Where else can you get such a low effort investment?
90% of all millionaires are invested in real-estate.
Now you know why!
A valuable book that probably very little of you have read is Building Wealth One House at a Time by John Schaub.
11: Tangible asset
Many investors believe in seeing and touching their investments. Some people look at crypto & stocks as imaginary money. For those people, real-estate is by far the preferred choice. You simply can’t go wrong with owning land and properties.
In case of emergency, you could use it personally as a residence or office. The fact that it can not be stolen, hacked and more is also a plus.
Traditional investors prefer tangible assets with a steady return over high-risk high reward alternatives.
12: Easily insurable
Insurance companies are all over the world. Every property, every piece of land can – and maybe should – be insured.
There’s an entire infrastructure around the insurance of real-estate properties with insurance brokers competing against each other for the best rates with the highest coverage.
With your property insured, you’re sleeping well at night as your tenant is covering that cost as well.
The main reasons why you should insure every property you own are:
1. Protection From Property Damage – natural disasters happen, be protected.
2. Reimbursement for Lost Items – Theft and Break Ins happen, be protected.
3. Protection From Lawsuits – people will try to sue you for any reason whatsoever, be protected.
This ability to protect your investment from harm makes real estate one of the best investments.
13: Easily transferable to kids
This is another big one for those of you looking to build: LEGACY WEALTH
Real-estate is easily transferable to the next in line, the infrastructure is there.
In most countries and states, there is NO TAX on inherited property.
Let’s do the math shall we? If you do your job well, buy some properties, leave it to your kids, they don’t screw it up and instead manage to acquire the same number of properties as you did, but the time the 3rd generation comes around, the rental income coming in from properties should be more than enough to cover their living costs. All they have to do is not screw it up.
This is the reason why The richest families in Florence in 1427 are still the richest families in Florence to this day. They own property and land, the diversify by investing in businesses and the fortune keeps growing.
When people think of real-estate, they picture an apartment or a duplex, rented out to a single family. There’s more to this story.
There’s a plethora of options when investing in real-estate.
1. Single family – like an apartment
2. Multi-family – like a townhouse
3. Apartment complexes – this one’s pretty self-explanatory
4. Short term rentals – like airbnbs
5. Hotels – you’ve most likely stayed in one before
6. Commercial – like owning the space where the bakery next door is
7. Commercial complexes – like owning a shopping mall
8. Office buildings – companies moving their employees in
9. Industrial – owning the space where plastic cups are being made.
10. Agricultural land
And these are just the most common ones.
Although similar, they behave differently, have different needs and different price-points.
15: Fairly easy to liquidate
The last reason on our list is quick access to cash if you needed it. Although it’s not as easy to liquidate as your stocks, due to the high demand there’s always someone looking to buy.
On average it takes the average person between 60 to 90 days to sell a house.
Although that sounds like a lot, it really isn’t when you think about it. Not to mention that if the cash need is urgent, you could take out a mortgage or refinance the place.
All of these reasons should get you thinking. We actually recommend you check local real-estate websites and find out just how much money an entry level property like an apartment or duplex goes for in your area. Then make a plan for the next couple of years to be able to get yourself there, one property at a time.
Just out of curiosity: How much is a 1 bedroom apartment where you live? Let us know in the comments.
This wraps up our article on why real estate is the best investment.