I Probably Shouldn't Tell You This
But I’m Going To Do It Anyway
Welcome to this week’s issue The Un-Normal Investor. Each week, I publish one 5-minute read that’s written to make you a smarter real estate investor.
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Real estate isn’t the ‘one stop shop’ investment that most brokers chalk it up to be.
It doesn’t provide the same liquidity or diversification as stocks.
The same risk-free stability that bonds provide.
Nor does it lend itself to the asymmetrical up-side that you can get from angel investing.
It’s tough for real estate to compete in any of these facets.
Albeit unspoken, the vast majority of prudent brokers and investors already know this; I’m just one of the few that’s honest enough to say it.
So where does real estate stand out compared to all of the other investment vehicles that you can stuff your capital into.
I’ll tell you: Tax Benefits, Leveragability, and Financial Security.
And if you care to learn exactly how, I dove deep into each category below ↓
Tax Benefits
Sure, there’s a couple of complex tax strategies that savvy stock investors can take advantage of - tax loss harvesting, health savings accounts, SEP-IRAs, etc. - but none quite compare to the perks of real estate investments.
For both real estate professionals and non-professionals, there is a laundry list of different ways that you can offset your active and passive rental income to drastically reduce your tax burden.
Here are some of the most common write-offs real estate investors can leverage:
Depreciation
Property Taxes
Maintenance + Repairs
Utilities + Operational Expenses
Lender Points + Other Borrowing Costs
The Interest Portion of Your Mortgage Payments
Elimination of Capital Gains Taxes Through Opportunity Zones.
. . . and the list goes on and on.
Leveragability
There’s not many assets that you can acquire with over 90% leverage; real estate is one of the select few.
You can buy a $1,000,000.00 property with less than $100K of your own money; and that’s just on the front end.
Once the real estate is yours, you can continue pulling money from the equity you’ve accumulated.
For instance, if you purchased the property for $1M, but it’s now worth $1.5M, most banks will lend you up to $1.2M completely tax free in the form of a cash-out refinance.
Depending on the size of your stock portfolio, you may be able to borrow against your brokerage account or leverage margin to tap into the portfolio’s market value.
However, the innate volatility of the stock market, coupled with the lack of cash-flow, makes this form of high-leverage borrowing extremely risky.
Financial Security
To put it simply, shelter is a basic necessity that every single one of us need.
Even if the world came crumbling down around you, as long as your real estate is still standing, you’ll always have a place to call home.
For those that own real estate, not only does it serve as a safety net if you fall short financially; but it’s also increasingly in demand as both the cost of renting and home ownership continue to rise.
Real estate - specifically residential and multifamily properties - are the only asset classes that provide duality in the form of a basic human need (shelter), plus economic gain (cash-flow and appreciation).
These tangible benefits are unique to real property.
As much as I love my Apple and Amazon stock, they can never house me and my family.
Despite the not-so-fun parts of owning real estate - dealing with tenants and managing contractors - the peace of mind knowing that I’ll always have housing if need be, is enough to convince me to keep a handful of properties in my portfolio.
The broker community may not like me for saying this, but we have to stop painting real estate as the picture-perfect investment for any and everybody.
There’s a short list of reasons why sticks and bricks (real property) may not be the best place for some people to place their capital.
But for those that want to reduce their tax burden, increase their access to low-cost capital (leverage), and establish a more firm sense of financial security, real estate is unmatched.
If this resonates with you, but you still have a few follow up questions, feel free to leave a comment or send over a private message. I’ve included the link below.
What’s your take on today’s topic? Do you agree, disagree, or is there something I missed?
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