Which Investment Strategy is the best? Real Estate, Of Course…
Life in America gives all of us some real latitude in the types of investments we can make. The goals of any investment are similar:
- To manage risk by keeping it at an acceptable level
- Keep expenses as low as possible
- Rake in as much cash as you can in order to reach your financial objective.
Sounds simple, doesn't it? In theory, it should be a snap.
In practice, however, it's anything but easy or simple. Most people lose their shirts' and some lose much more. Here's a short list of four of the most common investments people make, along with some of the reasons they don't make nearly as much sense as Real Estate Investing.
Playing the Stock Market
The stock market is the ultimate gamble that millions of people hoping to improve their financial situation make because it's a known commodity.
Everyone knows someone or heard of someone that has supposedly made a killing in the market. From Donald Trump, to Warren Buffet, even George Soros – the list of stock market power brokers that have created wealth out of thin air is impressive.
What most people don't realize is that these investing big-shots are the exception rather than the rule and that the stock market is almost always a losing proposition. The market can consistently go up for weeks, months, and sometimes years on end, and then out of the blue the market's stunning gains that created so much wealth can be gone in an instant.
There are a couple of different ways of getting into the market. You can either dump a huge wad of cash into the market all at once (assuming you have access to a ton of cash) or you can regularly invest smaller amounts by making purchases of stock over time.
The most common method of purchasing stock is through the practice of dollar cost averaging, which is an industry term that essentially means ignoring the cost of stock when the investment is made, banking on the idea that you'll make some purchases when the stock price is high, some when it is low, but that on average, you'll come out ahead because stock generally gains over the long term if you make an investment and leave your cash in the market.
While this is true, the stock market is as unpredictable as the weather. Timing is everything, because the stock market rises and falls based upon outside factors, such as corporate profits, political factors, public confidence, and government stability, so if you happen to invest when the market is under the influence of one of these factors or the market is in the middle of one of its regular peaks or valleys your returns could be considerably less.
It's also possible that without warning an outside factor over which you have no control could influence the perceived value of the investment and in the blink of an eye, much of the stock gains that your portfolio could have made could be wiped out.
The reason for this is simple: buying stock in a company isn't like purchasing something with a fixed value. Stock shares are nothing more than pieces of paper, whose value is determined by the perceived value of the underlying investment, a corporation.
So what? Isn't the value of everything based upon perceived value? Yes and no. While everything has a perceived value, most things have a generally accepted value. For instance, it's generally understood that a cheeseburger is worth between $1 and $5.
For stocks, the generally accepted value could be as little as a few pennies per share or as much as thousands of dollars per share. If the company that backs the stock goes out of business and you have purchased stock in that company with regular purchases in the range of tens of dollars per share, your stock could very easily be worth less than the paper on which your stock certificate is printed.
Stocks doesn't typically provide much of an income. While you can sell the underlying investment, you'll be on the hook for massive capital gains taxes on any profit that you've realized. There are some favorable tax treatments available for active investors, but it takes decades of hit and miss investing to truly understand the rules of investing.
It's also true that some stocks pay dividends, which you can take as cash payments to supplement your income. The problem with relying on these dividends is that the amount of these dividends is closely tied to stock performance. If the company has a bad quarter, large losses, or the board of directors decides to change the dividend payment for any reason, you could lose any potential income from ongoing stock ownership.
There is a place for stock market investments in any healthy investment portfolio; however, you shouldn't count on receiving regular income from your stock portfolio unless you want to micromanage the process. Passive income (other than dividend income) just doesn't happen.
Investing in a Brick & Mortar Business
Another common investment for someone with a dream of riches is to invest in a brick and mortar business. The question is: What type of business should you invest in and how much cash will you need just to get started?
Whether you choose to invest in a franchise business opportunity (such as a fast food restaurant or an auto parts store) or you choose to research and develop some other business opportunity, there are substantial start-up costs that can run into hundreds of thousands of dollars. Franchise fees, building acquisition fees, inventory, remodeling, advertising, and on-going cash needs for hiring and training staff, etc., make brick and mortar businesses an investment that is out of the reach of all but the wealthiest investors or those with well-heeled partners.
Of course, if you have access to a generous credit line, you do have the option of financing your dream. Regardless of whether you choose a franchise opportunity or you research and develop a business opportunity of your own, the U.S. Small Business Administration says the cards are heavily stacked against your business surviving the rough and tumble first year in business.
90% of all new businesses fail in the first year. Of course, if you survive the first year, the odds do shift slightly in your favor. There's a 50-50 shot that you'll make it five years and after that the numbers get even better. Of course getting to that point could cause you to prematurely lose your hair or worry yourself half to death thinking about all the calamities that could befall your fledgling business.
If a brick and mortar investment seems too risky to you, there is the possibility that affiliate or online marketing could hold your key to economic prosperity. It's a big name, but affiliate marketing consists of selling products or services for others on the Internet.
Online marketing consists primarily of selling your own line of goods or services to the online community. The good news is that the costs to get started can be very low. The bad news is that the odds are very heavily stacked against you.
Assuming that you can find affiliate marketing opportunities that are worth promoting, or you can develop goods or services of your own, web traffic is very difficult to harness. Without traffic, you have no chance of making any money.
Most successful online or affiliate marketers have spent thousands of dollars and hundreds and hundreds of hours learning about the industry, honing their marketing skills, and developing the insider knowledge necessary to succeed.
For every runaway success the information superhighway is littered with the wreckage of shattered dreams, unfulfilled opportunities, and grand ideas that either failed to materialize as their creators had hoped or more commonly good ideas that failed to gain traction with a very fickle buying public.
Something far too many would-be marketing successes fail to realize is that having a great idea and a website is only half the battle. The other half is letting the whole world know that you exist and that what you have to sell is better, or cheaper, or more desirable than what is available on any of the other websites on the World Wide Web.
You can build a great website, have a great product, and still lose your shirt because unlike the fabled ballpark in the movie “Field of Dreams” simply building it does not guarantee that they will come.
It takes months or years to develop a steady stream of clients willing to purchase what you're selling. In order to do that, you have to figure out how to get Internet traffic to your website through high search engine rankings (which is a miracle in and of itself because of the way the major search engines are constantly tweaking and modifying their systems of ranking websites based upon relevancy) or expensive and risky Pay Per Click advertising campaigns.
Real Estate Investing – an Investment that Makes Dollars & Sense
While these other investments can all make investors rich beyond their wildest dreams, none holds the promise of real wealth creation, passive income, and equity appreciation that real estate does.
Abandoned and distressed property investment does carry with it a minimal degree of risk, but there are ways to manage this risk while creating tremendous wealth without cash, credit, or a huge investment of time.
The secret to success in today's real estate market is knowing ahead of time whether an investment is a winner or a loser.
If it's a winner, you move forward.
If it's a loser, you move on.
Either way, you keep moving.
Real Estate Investing gives you the unparalleled flexibility of paying cash for property if you want to – but why would you want to?
Instead, by using the power of leverage to acquire abandoned or distressed real estate, you can build immediate equity, reap the rewards of passive income while you hold it, pocket potentially hundreds of thousands of dollars in profits when you sell, and then defer capital gains taxes that would otherwise be due until you want to pay them.
If the urge never strikes you to pay these taxes, there's a handy provision of the Internal Revenue Code that allows you to legally defer those taxes until you're safely tucked away in a cemetery somewhere.
Real estate investing can make all of your financial dreams come true. The secret to making it happen is knowledge. Knowing what and where to invest, how to analyze a great deal, and how to make money in any kind of real estate market can mean the difference between success and failure.
Final Note – Why Real Estate Investing is Better?
You can grow wealthy by investing in real estate. It takes knowledge and discipline. When you take productive action every day, no matter how small, you will succeed. Take it from a man who did it.
Peace and Prosperity,