There are two very major differences between investing in stock and investing in real estate. When investing in stocks you are typically investing for capital gains versus cash flow and have no control. In stock you are investing for capital gains, for the hope that it goes up over time but with very Abdo Romeo little control over the value increase or decrease. Most people, other than those that invest for cash flow dividends, invest for capital gains in stocks. But without control or seeing any return on your money without selling you are in a losing situation. You should NEVER buy an asset that you do not control, unless the return on investment is substantial enough to balance out the control.
Historically stocks have not averaged a high enough interest rate to justify the lack of control and increased risk. You have to be a professional stock investor, know some insider trading information and have some luck to beat the historic performance of stocks. In addition, as most people have seen in the stock market, half of your wealth can be gone literally overnight. Now if that is not a scary situation I don’t know what is. I know, I know, but the stock market has gone up so much in the last year. It has gone up because of all of the artificial government stimulus and extend and pretend economics. Not to mention the massive influx of cash into the banking system which is being hoarded by the banks and not being lent out, only for them to go invest it in the stock market for the short term. Why do they care, it’s not their money anyway, it’s the taxpayers money. Also, there are millions of people not paying their mortgage payments which is also adding to the amount of money people have available to spend. What did you think they were saving it?
On the other hand you have real estate. Which we just saw drop in value significantly and it will be declining more in major volatile markets like California because of the economics of those markets. Remember, real estate is dependent on local economies for the most part. The biggest difference between investing in stock versus investing in real estate is that with real estate you should invest for cash flow and invest in assets you have control over. Yes, we have all seen many people’s wealth deplete significantly in real estate also, but that was because people were investing for capital gains on the real estate and not cash flow. If you invest for cash flow first then no matter what the value of the real estate does you are still collecting your cash flow and are not as susceptible to the economic corrections. When you invest for cash flow, at the right time of the market you get the capabilities of increasing capital gains while also increasing cash flows. As the mortgage market gets tighter and people cannot go into massive debt to buy a house anymore it means you will have an increase in renters which increase your rent payments. As inflation happens, which is already happening, housing prices typically increase as well.
Investing for cash flows also allows you to strategically increase the value of the asset by increasing rents, decreasing expenses and helps you develop a strategic financial plan with a set goal. If you set goals to cover all of your personal expenses with cash flow by buying cash flow assets you can truly be financially free. It takes time but if you develop cash flow streams you do not have to be part of the new poor (old middle class). The way you develop cash flow streams through real estate is by first getting educated. Without education many investors buy wrong and lose money. There are a lot of barriers into the world of real estate so get educated first and then take action. There are many strategic ways of investing if you know the methods. Joint ventures are a great way to go and there are companies like ours out there that offer seller financing for those that lack credit but have the down payment. If you learn these strategic methods you can compound your wealth faster than you would have ever thought possible.