Three reasons why real estate is the best
investment you'll ever make.
Three reasons why real estate is the best investment you'll ever make.: (1) leverage, (2) renters and (3) taxes. There is an infinitude of wealth management doctrine on how to invest your money to make it rich. Most investment advisers will tell you all about stocks and bonds, annuities, mutual funds, asset allocation models, etc. Wonderful. There certainly is a place for all that in a diversified portfolio. However, let's do a quick comparison to illustrate why buying a primary home (and heaven forbid rental properties) is the best investment you'll ever make, even (especially) in today's market:
Unless you're Warren Buffet, you're probably going to average about 10% average return, at best, in debt and equity securities over your lifetime. Not bad. Now compare that to real estate, which appreciates at roughly 4% a year on average, barely ahead of inflation. Stick with stocks, you say? Hold on. The average investor doesn't, and shouldn't, trade stocks on margin, so there's no multiplier effect. The average investor, however, can leverage upwards of 95% loan-to-value (LTV) on their primary home. Even at a modest 90% LTV, your multiplier is 10X. At 10% down, that 4% appreciation just became 40%. Your 40% can just as easily become 400% a few years down the road through refinancing. That's the power of leverage working for you.
Finally, renters and tax advantages. Let's say you get crazy and decide to buy an income-producing investment property. Not only is your mortgage interest tax deductible on both your primary home and rental property, thus reducing your tax liability and offsetting most of your rental income, you can also depreciate your rental property over its useful life. Put your investment property in an LLC and you can deduct additional expenses, which further reduces your tax liability. Of course, managing renters indefinitely might not be your cup of tea. So, in a few years, after you've acquired a few properties and can afford to pay someone else, you sell them in a 1031 tax-deferred exchange, thus avoiding capital gains, and roll them into a single apartment complex managed by a property management company. You own an appreciating asset that far out paces other investments and that gives you the ability to further leverage your wealth as needed while providing numerous tax deductions that offset current and future income.
