THE MOST CONSISTENT INVESTMENT TO BUILD LONG TERM WEALTH
Real estate frequently takes the fall for the errors of men.
Take, for example, the Financial Crisis of a little over ten years ago. The real estate market crashed like never before along with it the rest of the economy, resulting in one of the most devastating financial crises of recent memory.
It was easy to point the finger at real estate for being the root cause of the Financial Crisis, but it had nothing to do with the inherent attributes of real estate and more with the irresponsible, greedy actions of bad actors in the banking and financial industries.
The real estate boom and bust that preceded the Financial Crisis was a direct result of subprime lending fueled by the insatiable appetite of foreign investors for asset-backed securities. The unprecedented rise and fall in real estate prices had nothing inherently to do with real estate and everything to do with unnatural demand fueled by sketchy home loans and financial products.
The real estate bubble was man-made, just like the dotcom bubble of the early ’00s.
The boom in dotcom IPO’s was also artificially generated by bad actors in the financial sector pumping stock prices for their financial gain. However, that’s where the comparison ends between the dotcom crash and the real estate crash.
Whereas most of the companies underlying the dotcom crash were worthless to begin with – with no inherent value, real estate in and of itself has value.
That’s why following the dotcom bust, most of those companies disappeared. Real estate, on the other hand, despite the giant fall, picked itself up and moved onward and upward just like it has every other time because real estate has inherent value.
Real estate’s inherent value is why it builds wealth more consistently than other asset classes.
It’s resilient, and except for the one time in its history where Wall Street got its dirty tentacles all over it causing the great crash, it is generally uncorrelated to Wall Street’s volatility and the volatility of broader markets.
There are several reasons why real estate is superior to other asset classes for building wealth:
| Cash Flow |
No other asset class can offer the type of cash flow for consistently building wealth like cash flowing real estate such as commercial real estate and investment properties. Most investments (stocks, art, jewelry, bitcoin, etc.) offer the promise of profit from appreciation. Unlike these asset classes, commercial real estate and cash flowing investment properties generate consistent cash flow from leases that in most cases (depending on the subsegment) are recession resistant. For investors seeking regular income essential for building wealth, cash flowing real estate can provide an attractive alternative to bonds, which also provides cash flow, but at much lower rates.
| Appreciation |
In addition to cash flow, appreciation (i.e., the increase in property value over time) is another way real estate builds wealth. While prices fluctuate over time, in the long run, real estate values have always gone up, and there is no reason to think that is going to change. Also, cash flowing real estate has historically demonstrated capital appreciation exceeding inflation over the longer term, resulting in strong actual returns (after adjusting for inflation) to investors, making it an ideal hedge against inflation.
| Tax Benefits |
Tax benefits such as depreciation enhance the real rates of return on real estate investments. Depreciation allows you to write off part of the value of the asset itself every year. This significantly reduces the tax burden on the money you do make, giving you one more reason real estate protects your wealth while growing it.
| Better Risk-Adjusted Returns |
Because real estate is not correlated to the stock market, it offers diversification and potentially higher returns when compared to mutual funds, stocks, and bonds. In fact, real estate has historically provided higher returns at a lower risk.
| Leverage |
Widespread access and availability of conventional and unconventional financing for acquiring real estate allow investors to leverage their investment capital to acquire multiple properties instead of just one, allowing for accelerated wealth creation and growth.
| Diversification |
With its breadth of real estate options across segments, price, and geographic location just to name a few, real estate offers the type of asset-backed diversification unparalleled by any other asset class.
Yes, real estate has stumbled from time to time, but it has consistently gotten up, dusted off its shoulders, and continued onward and upward.
No other asset class can build wealth consistently like real estate by offering unmatched cash flow, appreciation, tax benefits, risk-adjusted returns, leverage, and diversification.
The beautiful thing about real estate investing is that it lends itself to investment in a variety of manners – whether directly acquiring properties or by relying on the expertise of others.
Discover current opportunities available to partner with Fall Creek Asset Management and enjoy the benefits of the wealth building attributes of real estate.