My first experience with real estate investing came somewhat regrettably and unexpectedly. My uncle owned a 34-acre horse farm about 20 minutes from my home and when he passed on at the ripe old age of 89, I was one of the heirs to the property. Uncle Jim was a gentleman farmer who for most of his life had dabbled in racehorses as a hobby. It was only natural that he’d purchased a property where he could retire his beloved animals and tend to their well-being, after their days at the downs ended. I spent a lot of time on the farm as a boy, cutting grass, painting paddocks, and eating homemade strawberry-rhubarb pie in one of my all-time favorite places on Earth: the hayloft on the second tier of the 10-stall bank barn that stands as the farm’s crown jewel.
My sister and I were a bit intimidated when the farm fell into our possession. We knew as much about owning horses as we did nuclear physics. She taught autistic children and my background was in finance. And for that matter, what did we know about the advantages of real estate as an investment? Neither of us had ever been landlords, but we were about to try.
Real Estate Investing Advantages
I’ll never forget my sister’s words while we decided to sell or rent: “Let’s stick with what we know here. Teaching is what I know. Finance is what you know. ” Knowing also that professional real estate investors come from all career backgrounds, we put our heads together and formulated a real estate investment strategy. Forging ahead, we soon learned that the opportunities in real estate rivaled any other money-making ventures we’d ever pursued. Here’s why.
#1 A Tangible Investment
It would soon strike me that real estate compared favorably to the securities I’d owned for most of my adult life: stocks, mutual funds, and real estate investment trusts (REITs). Despite my uncle’s sister, a.k.a. our mom, beckoning us to sell and pocket the cash, I had a great deal of sentimental attachment to the farm. Spending time on the property gave me a certain peace and perhaps I could explore living there one day. Believe me, I didn’t get the same vibe from my 401(k) plan or the purchase of stock my wife’s cousin recommended. That dog went from $10 per share to $2 before the ink on the check dried. Real estate edged out in front of the other investments by a nose.
#2 Income Tact
Negotiating a market value rental price, we leased the property to a young couple. Before taxes, insurance, and maintenance, that income stream amounted to a yield that surpassed any fixed-income investment I could find. At that time, shortly after the financial crisis of 2008, I was hard-pressed to discover any investment-grade bond, certificate of deposit or REIT that came close to exceeding the yield on the rental income. Interest rates stood at all-time lows in those years and the bellwether 30-year Treasury bond rate hovered around 4%.
#3 Picking a Winner?
In my opinion, growth stocks and mutual funds belong in anybody’s investment mix. Both vehicles notably outperform inflation over the long term, and if you invested $2,000 in Amazon’s 1997 initial public offering, you’d have amassed over $1.1 million in the 20 years since. That’s impressive. Even more impressive is knowing which stock to pick and how long to hold onto it. I do know this: I’ve been around quite a few haystacks since 2010 and trust me, I’ve never found a needle in any of them. Furthermore, the annual valuation of the property continually trended upward. I couldn’t say the same about my other growth investment vehicles.
#4 Heady Growth
Despite my understanding of the stock market, I don’t relish volatility. It’s fine in theory but when it’s my money, I tend to get a bit riled up when my portfolio dives by 30%. I’ve yet to witness any decline in our investment property. In fact, in 2017, we had an unsolicited offer that eclipsed the appraisal value. That’s market value–what a buyer is actually willing to pay–and not appraisal or assessment value. When I summoned my calculator, the percentage increase in value equaled or surpassed the appreciation of principal in most components of my portfolio. Add in the annual rental income and our average annual rate of return compared admirably with any other growth investment I’d owned. Real estate stayed out in front of other investments by a head.
#5 Stay the Course
Don’t get me wrong. My sis and I have torn through a few dozen blister packs of Zantac in the past eight years, and I’ve earned every one of the calluses on my hands. We’ve also become less enamored with our people persons’ instincts as a couple unscrupulous tenants left us with dumpsters full of junk. In addition, even though we’ve waded through stalls filled with leftover horse droppings, our luck hasn’t ascended to the level that legend claims it should. However, we’ve persevered. Much of the success we’ve realized resulted from due diligence and hard work–factors we could control. Not everyone can make that statement when reviewing the positive or negative returns on their stock and bond portfolios. For us, real estate won the race by a length.
HomeVestors® Adds Value
With the pros outweighing the cons in real estate investing, we soon built an entire portfolio of properties. Before this stage, we did seek help. We became an independently owned and operated HomeVestors® franchise. HomeVestors has a network of franchisees like us who have purchased over 100,000 homes nationwide since 1996. HomeVestors equipped us with the knowledge and confidence we originally lacked before embarking on our first real estate investment adventure. HomeVestors®’ franchise opportunity paired us with an experienced development agent for mentorship and with leads from distressed property owners who, like us, had all been in the same shoes at one time.
Contact HomeVestors today to see how quickly you can get out of the gate, sprinting toward a win.
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