Ninety percent of all millionaires become so through owning real estate
We have all heard that residential real estate has been one of the best investments one can make. Whether the goals are to generate monthly income, provide tax shelter or build future wealth through appreciation, real estate investment has been successful for most investors.Taking a look at its historical record in comparison with other popular investments, real estate has performed substantially better. In the past 40 years, real estate has averaged an appreciation of over 5% per year. Recent downturn is included in this average. This appreciation rate, combined with leverage availability, has generated a tremendous return to real estate investors. As an example, an average investor re-leveraging real estate every 5 years would have turned a $25,000 investment 40 years ago into a net worth of $2,175,743 today. This amount would be substantially higher if you include the cash flow accumulated over that time from rental income. In comparison, $25,000 invested in mutual funds 40 years ago with an appreciation rate of 10% would be worth $436,235 today. Almost five times less than real estate.
Real estate investments tend to hold up better than other investments during recessions. The worst yearly return for the S&P 500 was -37% in 2008. By comparison, the most precipitous drop in median home price was -12.9% from 2008 to 2009. Because of its relative illiquidity, real estate as an investment is subject to less volatility than the stock market. For those seeking stability in the performance of investments and cash flow, knowing the value of real estate as an investment is crucial. Even in the worst economic climates, the financial stability found in monthly cash flow from real estate investment cannot be challenged and is difficult to find in other investment vehicles. When home sales are down, rental incomes tend to go up.
Steady appreciation, ability to leverage, less volatility and income tax benefits make owning real estate the best option for many investors. With record low interest rates, good supply of reasonably priced real estate, and rising rental rates, this is as good of a time as ever to buy residential investment property.
Many of today’s buyers of investment property do not have substantial experience in buying real estate. They know that the real estate economy is cyclical and in the future whatever they purchase today will increase in value. They generate their own income and expense projections and make decisions to buy property if these two goals are attainable. It is simple and in most cases effective. Many others are skeptical and are sitting on the sidelines waiting for the right time to invest. Having the thorough analysis of their investment potential and guidance with every aspect of ownership would in many cases turn them into buyers.
This is where real estate professionals can better serve their industry and assist their clients. The current trend has been for most agents to assume they know investors and investor needs. The reality is most agents are merely directed by investors to perform searches or conduct transactions without really understanding their motives. This reactive-agent business model relegates the agent to order taker than the position of trusted advisor and consultant.
Having the most successful investment to offer, real estate professionals need to provide comprehensive and accurate analysis and ownership support to their clients. Presented properly, real estate as an investment will sell itself.
President of Geo Properties, Inc.
Certified Investor Agent Specialist