5 Reasons Real Estate Invesmtent is more Comfortable than Stocks
Posted: February 22nd, 2007
Category: Real Estate News
Main Street is better than Wall Street
Jason Hartman, Founder & President, Platinum Properties Investor Network has a good breakdown of the 5 Comfort Factors that make real estate investing more attractive than the stock market. They are…
COMFORT FACTOR #1: Tax benefits
Most of the tax benefits associated with investing in real estate are fairly straightforward. To summarize, sell stock in which you have a gain and you’ll be paying taxes - there’s just no way around it. But sell appreciated property and if you do it right, you can defer your tax indefinitely.
COMFORT FACTOR #2: Cash flow
Most stock market investors will pay 100 percent of the share price for a stock (investors who don’t mind the risk of margin calls can buy many stocks for 50 percent down), while real estate investors typically need to put down only five to 10 percent with no risk of margin calls.
COMFORT FACTOR #3: Risk management and control
For decades, real estate has been the most reliable and dramatic wealth generator for millions of people - and despite the slump experienced in some recently booming areas, many parts of the country continue to experience price appreciation. Real estate markets with steady, solid growth present little risk to mortgage lenders, so it makes sense for them to loan money to investors on attractive terms. Not only does it make sense, but they are actually anxious to loan it to you. Although stock investments have potential for lucrative returns, they are unfortunately afflicted with volatility and suffer unpredictably sharp price fluctuations that often have nothing to do with the quality of the company or the competence of its management.
COMFORT FACTOR #4: Leverage & appreciation
Housing is a universal need and with labor and building materials becoming more costly and populations on the rise, real estate prices have nowhere to go but up in certain markets over the long term. With mortgages on sale at the lowest interest rates in the past 40 years, it makes sense to invest in real estate. To simplify, investing $10,000 in residential real estate with leverage versus a $10,000 investment in the S&P 500, results in residential real estate solidly outperforming the S&P 500 - not counting the tax benefits of real estate.
COMFORT FACTOR #5: Early mortgage payoff
Rent a property for greater than the sum of the monthly expenses and you’ve got positive cash flow. Use the income to enhance your lifestyle, pay off debt, or re-invest in additional properties. This is when Rent-to-Value (RV) Ratio™ becomes critical - a quick, rule of thumb evaluation technique that can instantly determine whether a property makes good investment sense. The ideal RV Ratio is 0.7 percent - anything below 0.5 percent would be considered an unwise investment decision. For example, considering a $200,000 house in Texas that rents for $1400/month (RV equals 0.7 percent). Renting the property for as low as $1000 would still result in an acceptable RV Ratio of 0.5 percent. By comparison, a $500,000 property in Southern California may rent for $1500/month, generating a 0.3 percent RV ratio. By selecting properties that make sense from the start, cash flow can be maximized. Even by using a similar ratio for stocks, the price-to-earnings (PE) ratio, choosing a stock that appears to make sense will not necessarily produce as predictable and reliable an outcome.
Click here for a complete review of why Main Street is better than Wall Street.
Leave a Reply
- Atlanta real estate
- marietta real estate
- woodstock real estate
- holly springs real estate
- canton real estate
- ball ground real estate
- jasper real estate
- ellijay real estate
- alpharetta real estate
- roswell real estate
- waleska real estate
How do you calculate rent to value, though? Bear with my rudimentary math skills, please!
You calculate Rent to Value by dividing the monthly rent by the sales price (or value). For example, $1,400 per month rent on a $200,000 property yields an RV of 0.007 or 0.7%.
That help?