On an increasingly shaky — and at times, terrifying — investment landscape, a growing number of people are turning to a staple vehicle that has proven, decade after decade, to be a sound, smart, safe and often lucrative investment class: real estate.
According to Eric Dalius, the investment guru behind the CORE (“cash-out real estate”) program that was incorporated into the Learning Annex, and championed nationwide by “Rich Dad, Poor Dad” author Robert Kiyosaki, here are four reasons why real estate might be a worthy addition to your investment portfolio:
- Beat the stock market.
For every winner who plays the stock market game, there are many more losers who either fail to achieve their expected rate of return, or in some dire cases, lose their proverbial shirts. And while some pundits proclaim that stocks ultimately rebound in the long run, but Eric Dalius reminds us of the immortal words of seminal economist John Maynard Keynes: in the long run, we’re all dead.
While real estate is certainly not immune from downward price pressures, valuations are far more stable than the stock market. Eric Dalius explains that investors have much more control compared to stocks, and historically real estate has out-performed the stock market by a significant amount.
- Real estate values recover and increase over time.
As noted above, the value of a stock can plunge dramatically in a very short period of time — especially since so many lighting sell-offs are based on self-fulfilling prophecies: some nervous investors dump their stock, which triggers cycles of selling until analysts pull the alarm bell and it’s a race to the bottom.
Eric Dalius claims that, providing that you do your homework and avoid groundless speculation, real estate is a tangible asset and values are based on fundamentals. Even when real estate bubbles pop, investors who stay the course almost always see that property values recover and rise over time. This is not necessarily the case with stocks, where companies can go from trading in the triple digits to being a penny stock within a matter of weeks, and eventually disappear altogether.
- Turn equity into leverage.
With real estate, investors build equity that does more than increase their net worth: it also gives them leverage to capitalize on various revenue streams, such as rental income. Furthermore, since real estate is a tangible asset, multiple financing options are readily available for value adding renovations and improvements, and to purchase more properties.
One of the reasons people who start investing in real estate never look back — and why real estate has created more millionaires than any other type of investing — is because they quickly realize how easy it is to use existing properties as collateral to get loans for additional properties. Eric Dalius explains that all an investor needs to do is put down 10 or 20 percent from their own pocket. Banks will compete with each other to pay the rest.
- Take advantage of multiple tax benefits.
There are several tax benefits available to real estate investors, such as depreciation, lower capital gains, no FICA tax, deferred tax on savings due to mortgage refinancing, deferred tax when exchanging a property for equal or greater value (1031 Exchange), and a host of deductions including mortgage interest, operating expenses, insurance, and property taxes (provided that the taxes are not allocated for local benefits in a manner that directly improves the value of a property, such as assessments for sewer lines, sidewalks, etc.).
Eric Dalius advocates that investors should make sure they work with an experienced accountant who is fully up-to-date on the available tax benefits, along with the documentation that must be submitted as part of a tax filing or kept on-hand in case it is requested by the IRS.
Eric Dalius’ Final Thoughts
Real estate investing requires determination and a detailed investment plan. Investment plans are mandatory due to the nature of the investment, your assets are not as liquid as stocks or bonds. Eric Dalius wants readers to remember that they must always conduct thorough research and determine their intended outcome of the investment, and their risk tolerance. These reasons to invest are meant to spark your interest in real estate investing, not to teach you the ins-and-outs of investing, conduct your own thorough research and always contact a professional prior to investing.