Why investing in Real Estate is better choice for long term holding than investing in stocks and bonds?

There are 5 critical KEYS elements that allow you to build wealth for future and also allow you to live a lifestyle by your design though investing in Real Estate.

Real estate investment is an “IDEAL” investment vehicle that allows you to achieve financial freedom. Let me break them down some keys components so you deepen knowledge in this business.  Why I chose to invest in real estate is not just about building passive income, but also building wealth for the future.

I – Income:  

You will learn to buy rental properties that can generate positive monthly income after you pay for all the expenses.   This is call passive income that mean as long as you own the property,  you will continue to receive monthly cash flow.

D –Deprecation: 

The IRS allows you as an investor/owner to depreciate your rental properties that you rent out to others.  You can also depreciate the money that you pay for the rental improvements like adding new bathroom, upgrade kitchen.  You can’t depreciate the land because it does not wear out.

E – Equity:  The equity is being pay down by the mortgage monthly payment and the longer you hold the property the lower the loan balance left on your loan.   Usually the tenants who live at your rental properties will pay down the mortgage for you.

A-Appreciation:   Appreciation is a bonus for rental property.  It’s good to be conservative to count 2-3 % inflation rate yearly, therefore, your property value will increase base on the inflation.  See the chart of historical inflation in the US.  

Assuming you bought one rental with the purchase price at $100,000 and you only put down 20% ($20,000) and borrow the bank 80% ($80,000) so when the property increase base on the inflation of 2%, then your rental value is at $102,000 (increase $2000).  

So the return on your investment is at 10% ($2000(increase in value) / $20,000 (down payment).  You can build wealth for your future on a very conservative side.

L- Leverage: 

you can buy a rental property by borrowing 80% of the purchase price from a bank when you have an income to support the payment.  If not, you can use other creative financial options.   Make sure you do your own due diligent for each rental project and knowing the rental income will exceed the monthly mortgage payment plus other expenses, and still has some cash flow left at the end.   You do not need to have a lot of money to invest in real estate. 

For some investors, they started out with very little capital and have a plan to be disciplines on their spending so that they can save up for a down payment of a new rental with require only 20% down and they can leverage the bank money. Real estate investment is much better asset class to build long term wealth because it has 5 keys benefits above. 

They’re intangible asset that you can control on the day to day operation that stocks and bonds do not offer because things can change in a day within the company that you invest and you do not know about it until quarterly meeting, by then, you may lose large sum of your money.

How do you protect your investment account when the market down turns in the stocks/bonds market? Please share your comment below.

11 comments

Love the post and I now know this can create wealth for years when you know how to buy right and hold it for the long time. What are the steps that are concrete to help me buy my first rental?
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Korianne Mar Oct 16, 2017 09:34pm
Susan, you're right on with the buy right and hold it for a long time will definitely not just providing income now, but also building steady wealth for the future. Please read this post to guide you buying your 1st rental. https://korianne.com/1st-rental/
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Gordon Kliebert Oct 24, 2017 07:13am
Thanks, I've recently been looking for information approximately this topic for a long time and yours is the greatest I have came upon till now. But, what concerning the bottom line? Are you positive in regards to the supply?
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Korianne Mar Oct 30, 2017 11:32am
Gordon, thank you for your comment. The bottom line is to buy RIGHT. By law of large numbers, a lot of properties are not RIGHT to purchase. However, I know right purchases are out there and you must do your own due diligence to make sure the return meeting your financial objectives as well as having additional cushion. I have a set of rules that I follow for each property that I acquire.
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Great post, Korianne. Thank you for sharing the benefits owing rental properties vs stocks market. I live in WA State, house price is high to get positive monthly cash flow. Can you advise a couple cities that rental properties still provide monthly cash flow? Thank you
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Investing in stocks and bonds are for the long term just like real estate. You must know how to allocate your money among all asset classes so that you can build a diverse investment portfolio. Do not sell when the market goes down. You must have a mindset to be in it for a long haul.
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Korianne Mar Nov 1, 2017 02:53pm
Andy, agree with you about diversifying your investments portfolio. The stock and bond crashed in 2000 and 2008 wiped out a lot of money of people who had their money in a retirement account. I still favor investing in real estate property as it's intangible asset and I can do my careful due diligence before investing in any rental properties. Stocks and bonds can change overnight due to the internal management changes and common people like us will have no access to this internal news or changes. The price of stocks/bonds can drop dramatically the next day.
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Korianne Mar Nov 14, 2017 12:02pm
Joe, Houston, San Antonio and Dallas are still able to get 7-9% cash on cash return with the purchase price. You need to work with a good local real estate agent who can help you with the purchase and connect you with the good local property manager to help with your investment. Do your homework well in these three markets. Let me know if I can help with anything else
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Agreed. There will always always be a need for real estate. That's why they say it is the best form of investment. It also gives a better return on investment. I've always felt that stocks were a sort of gamble...maybe an educated form, but still more risk than reward in my opinion. Real estate has a great reward...with little risk. CEO Mark Lopez www.averagejoebuyshouses.com
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Korianne Mar Jan 22, 2018 07:40pm
Thanks Mark for stopping by to share our wisdom about real estate investment. I totally agree with your opinions.
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What is Real Estate Investment Strategy Best Suited for YOU? May 21, 2020 03:59pm
[…] This is my favorite strategy as it meets my family financial objectives.   I now only acquire properties through wholesalers.   Buying properties at wholesale prices offers me an instant equity, the difference between the wholesale and the market price for a specific property.  Spend some money to make a property ready for retail rental market and then collect the monthly cash flow while building wealth for years to come.  It’s an IDEAL investment! […]
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