15 Reasons Why Real Estate is the Best Investment
Halloway Luxor's! We're thrilled to have you back for another amazing Sunday motivational video, especially today when we're breaking down why real estate is and has been the best go-to investment for building wealth. By the end of this one, you should have a clear understanding of how wealth is built through real estate and why the rich always have some part of their portfolio invested in land and buildings. Welcome to Alex calm, the place where future billionaires come to get inspired. If you're not subscribed yet, you're missing out!
Keeping the intro short, here are 15 reasons why real estate is the best investment to make you rich.
Number one: Store of value. Historically, the real estate market has outperformed gold in terms of store of value and returns. Exceptions being the events post-2007, but even then, the smart investors have picked up properties with a discount. Real estate is one of the safest investments one could make because the value of properties rarely goes down, and even then it's only for a short period of time. You can rest assured the value of your property doesn't get devalued as more buildings rise up, unlike fiat currencies like the US dollar, which drops in value every time new money gets printed. You want your value to be saved generations from now: buy land, buy buildings.
Number two: Natural appreciation. One, the population is constantly increasing. Two, people need places to live and do business. Three, most businesses are concentrated in hotspot cities. These three drive the demand for housing up constantly, thus increasing the value of a property. On average, homes everywhere in the world appreciate in value by 3 percent per year. The trending markets are seeing even more rapid growth. For the past decade, central real estate has appreciated on average by 6 percent per year, effectively doubling in value every 10 years or so. Not only does real estate maintain its value over time, but it grows your value for you due to the constant increase in demand.
Number three: Forced appreciation. On top of natural appreciation, there are options which you can use to drive the value of property up by yourself. Forced appreciation is increasing the property value through direct efforts and investments into the property. Put on a fresh coat of paint, fix the roof, add solar panels, insert technology, or interior design—all are tools that can force the value of property to go up. This is the main reason why the entire house flipping market exists. People find properties that are in poor shape, maybe undervalued, force appreciation onto them, and sell for a profit. Not only is real estate a solid asset, but you can actively build it up to be worth more if you choose to.
Number four: Tax benefits. Governments really like real estate investors, and they treat them differently when it comes to taxation. Real estate investors pay less tax than almost any other citizen. Why? We provide housing for the general population and increase value by developing land. This is why real estate investors are called developers. Here are just some of the tax deductibles you can receive as a real estate investor: one, depreciation deduction from income; two, mortgage interest tax deductions from income; three, cost of repairs, maintenance, and upkeep; four, cost of services, rental property management, and legal consultation or services; five, utilities; six, travel costs associated with the property like checking on the property for business purposes; and seven, property tax deductions. No matter where you live in the world, you'll find that governments often treat real estate investors better than small business owners or the rest of the citizens.
Number five: Passive income for life. This is probably our favorite point, and if you've been in a lexer for some time now, you're already familiar with cash flow and earning passive incomes from properties, which is why we'd like to put it in a different perspective. Own an apartment in Manhattan or Paris that's rented out, and as of making this video, you can live for the rest of your life from that single rental fee. We personally know people who've done this. Andrey relocated full-time to Asia. People need central housing, and there are no new apartments built in the center of cities. Even when they do, they're ultra-expensive and out of the reach of the average person, specifically because these projects are reserved for other real estate investors. There will always be demand for quality real estate, and people are willing to pay the high-end rates because the alternative is to waste up to two hours every day in transit from the edge of the city. Real estate is the modern-day version of an oil rig in your backyard, working 24/7 to make money for you.
And here's a fundamental lesson for you from one of the greatest investors of all time, Warren Buffett: If you don't find a way to make money while you sleep, you will work for money until you die. If this interests you, we made a dedicated video on the best books on real estate investing, which you can check out by clicking in the top right corner.
Number six: Market cycles. Believe it or not, experienced real estate investors love market cycles. They love it when market prices go down and property prices drop. Why? Because they can buy more for cheap while everybody is freaking out. While the economy is struggling, that's when investors come out to buy and sell as much as they can. If somebody offered to sell you a brand new Ferrari that you knew was worth $300,000 for only $100,000, knowing that all you have to do is keep the car in the garage for a couple of years, maybe drive it now and then, and you could sell it for twice that amount if you wanted to, wouldn't you make the deal? Real estate enjoys similar market cycles to the stock market, and as of making this video right now, we're about to enter into a downturn for the market. Those of you with the funds, get your wallets ready.
Number seven: Price range. A big issue most people have is that real estate is not accessible; that it's too expensive. Yes, it's expensive if you look at real estate in Manhattan or Paris, like we mentioned earlier, but move up into the edge and prices begin to drop considerably. You can buy a one-bedroom apartment in Tbilisi, Georgia for $20,000. You can buy a three-bedroom apartment in Spain for 40,000 euros. Zillow is filled with $60,000 homes up for sale. And here's a brutal truth for you: if you're unable to make $50,000 to invest in a property, the investment life isn't for you. On the other side of the spectrum, you have mansions, castles, residential complexes, shopping malls, and office buildings. There are options for everybody; you just have to look.
Number eight: Fairly easy access to funding. Anywhere in the developed world, you have access to banks. Banks provide credit if you're employed and prove that you have the means to pay the money back. It's never been easier or cheaper than it is today to have access to capital. Many governments are offering preferred interest rates when it comes to buying a home. Learn about these programs and take advantage of them. In some cases, there is as little as five percent money down on a credited investment backed by the state, and everybody has access to these types of crediting programs. Don't complain about the game being rigged if you don't take the time to learn the rules.
Number nine: Refinancing. For most people, refinancing seems limited to getting another credit card to cover a previous credit. Real estate investors do that as well. When interest rates drop, they go to a different bank, take out credit, and pay for the previous one, and now pay less than they used to, keeping more of the rental money in their pocket. But refinancing can do more for you if you're smart. Let us explain it through an example: You search the market and find an undervalued property worth $100,000 that you're able to buy for $80,000. The thing is, you only have $20,000, so you borrow the remaining $60,000 from a bank. Instead of going for a quick sale, you invest $5,000 more into fixing up the place and getting a quality tenant to rent it. You now go to a different bank and ask them to refinance your house. They look at the property and your rental income it's generating, and they offer you up to $130,000 in financing. You pay the $60,000 to the previous bank and are left with $70,000 in cash on hand to buy two or three more properties. This is the simplified method of building wealth through BRR (Rehab, Rent, Refinance), and it's how most beginner real estate investors get their portfolio started.
Number ten: Other people pay for your investment. But let's say you don't want to do all these financial acrobatics and instead want to settle for just ownership. All you have to do is make sure the income coming in from the rental property is greater than the mortgage plus supportive expenses. Here's how the math breaks down: You put down $20,000 for a $100,000 property, with the remaining $80,000 mortgage for thirty years. The property rents out for $1,200 per month. Your expenses are mortgage $350 a month, utilities, insurance, repairs, management, and vacancy. Let's bundle all of them up to $650, totaling $1,000. This property has a cash flow of $200 for the next thirty years. It will put $200 every month into your pocket while the tenant will be paying for your mortgage and other expenses, effectively buying you a property and maintaining it. Where else can you get such a low-effort investment? Ninety percent of all millionaires are invested in real estate. Now you know why!
A valuable book that probably very little of you have read is "Building Wealth, One House at a Time" by John Schaub. Lucky for you, it's available on Audible, so if you go to alex.com/freebook and it's your first time signing up, you can get it for free as an audiobook. Get the audiobook, listen to it, and take notes.
Number eleven: Tangible asset. Many investors believe in seeing and touching their investments. Some people look at crypto and stocks as imaginary money. For those people, real estate is by far a preferred choice. You simply can't go wrong with owning land or property. In the case of an emergency, you could use it personally as a residence or an office. The fact that it can't be stolen or hacked is also a plus. Traditional investors prefer tangible assets with a steady return over the high-risk, high-reward alternatives.
Number twelve: Easily insurable. Insurance companies are all over the world. Every property, every piece of land can, and maybe should, be insured. There are entire infrastructures around the insurance of real estate properties, with insurance brokers competing against each other for the best rates with the highest coverage. With your property insured, you're sleeping well at night as your tenant is covering that cost as well. The main reasons why you should insure every property you own are: one, protection from property damage; natural disasters happen, so be protected; two, reimbursement for lost items; theft and break-ins happen, so be protected; three, protection from lawsuits; people will try to sue you for any reason whatsoever, so be protected.
Number thirteen: Easily transferable to kids. This is another big one for those of you looking to build legacy wealth. Real estate is easily transferable to the next in line. The infrastructure is there in most countries and states; there is no tax on inherited property. Let's do the math, shall we? If you do your job well, buy some properties, leave it to your kids, and they don't screw it up, and instead manage to acquire the same number of properties as you did, by the time the third generation comes around, the rental income coming in from these properties should be more than enough to cover their living costs. This is the reason why the richest families in Florence are still the richest families in Florence to this day. They own property and land, they diversify by investing in businesses, and the fortune keeps growing.
Number fourteen: Diversification. When people think of real estate, they picture an apartment or a duplex rent it out to a single family, but there's more to this story. There is a plethora of options when investing in real estate: 1) single-family, like an apartment; 2) multi-family, like a townhouse; 3) apartment complexes—this one's pretty self-explanatory; 4) short-term rentals, like Airbnb; 5) hotels; you've most likely stayed in one before; 6) commercial, like owning the space where the bakery is next door; 7) commercial complexes, like owning a shopping mall; 8) office buildings—companies moving their employees in; 9) industrial—owning the space where plastic cups are being made; 10) agricultural land. And these are just the most common ones. Although these properties are similar, they behave differently, have different needs, and different price points.
Number fifteen: Fairly easy to liquidate. The last reason on our list is quick access to cash if you need it. Although it's not easy to liquidate as your stocks due to the high demand, there's always someone looking to buy. On average, it takes most people between 60 to 90 days to sell a house. Although that sounds like a lot, it really isn't when you think about it. Not to mention that if the cash need is urgent, you could take out a mortgage or refinance the place.
All of these reasons should get you thinking. We actually recommend you check out local real estate websites and find out just how much money an entry-level property, like an apartment or a duplex, goes for in your area. Then make a plan for the next couple of years to be able to get yourself there, one property at a time.
And just out of curiosity, how much is a one-bedroom apartment where you live? Let us know in the comments. Who knows, maybe your city is ripe for investment, and a Lexus will jump at the opportunity.
And since you've been watching these videos until the end for so long, you of course deserve a bonus. Here it is: the truth about real estate. The truth is that most people don't start with real estate right away. Even the real estate gurus, like Grant Cardone, Robert Kiyosaki, and more recently, every real estate YouTuber, they have a main hustle which pays for their real estate investments. Grant Cardone made his money selling courses on how to sell. Robert made his money selling books, and the likes of Graham Stephan earned more from YouTube than they ever did in real estate. Even for us, as a full disclaimer, if we didn't have our investments and media companies, we wouldn't have been able to grow our real estate portfolio as quickly as we did. Find yourself a source of money where you can exponentially grow your income. The more you work, the more money you're able to bring in. Then instead of spending it, use the money to invest in real estate. Secure your fortune this way; that's how you become wealthy. You work for money until you have enough money working for you. Your goal in the next five years should be to dramatically increase your income so that real estate investments are quite accessible. If owning properties is on your goal list and you're still watching this video, please write the word "goal" next to your answer to today's question in the comments below.
Thank you for spending some time with us, Aluxers! Make sure to LIKE and subscribe so you never miss another video. We also hand-picked these videos which we recommend you watch next. You can talk to us on all social media or ask a question on our website, Alex calm. Thank you for being an Aluxer, and we'll see you back tomorrow!