Real Estate vs Mutual Funds

I have a question for YOU! Why are you not investing in Real Estate? Why do you not own a piece of dirt other than the one you live on?

You know what amazes me? Year after year, we shovel wheel-barrel loads of money into that, intangible monster we call the stock market. Most of us do this with, what mutual fund propaganda, refers to as, "The Long-Term Thinking Approach". We take our hard earned cash that has been earmarked for retirement and we hand it over to a banker or other financial advisor who gives it to some dude in an ivory tower, whom you'll never meet, to invest in a volatile, risky market that is based purely on emotion. Sounds risky to me.

Now let's take that "Long-Term" approach and apply it to Real Estate. If I can be so bold as to say, "Real Estate is six times better to invest in than its intangable competition".

Allow me to explain: Let's say you buy a duplex for $300k and you put $45K (15%)down. That leaves you with a mortgage of $255k and a payment of $1675/month based on a 20yr amortization and a 5% interest rate. Let's assume you rent your two units for $1100 each (plus utilities) which will give you enough to pay your mortgage and the taxes.

At the end of the 20 years your mortgage will be paid off and assuming the market has risen by a modest 100%, over the 20 years, you will have an asset worth $600k.

Here's the exciting part: How much did we originally invest? $45k right. Now lets take our future value and subtract it from our investment ($600k-$45k=$555k) divide our total increase by the number of years of investment ($555k/20years = $27,750) and divide our per year profit into our total investment ($27,750/$75k = 66.7%) Remember that's 67.7% per year, return on investment (ROI).

Now, let's go back to our mutual fund propaganda; what is it they say to hope for over the long haul? That's right - an average of 10% ROI is considered good. Using this as our prescription to a wealthy retirement, over the same 20 years, mutual fund would have a total of 200%. Sounds pretty good eh? Yes, except when you do the math - 200% of $45K is $90k. So the total increase in the mutual fund was a mere 16% of the increase in real estate ($90k/$555k = 16.2%). Another way to look at is, the Real Estate investment had a return on investment that was 6 times the amount of the mutual fund.

Now, in fairness I have not allowed for repairs and maintenance or vacancy on the Real Estate Investment. Nor have I allowed for the tax advantages of a mutual funds growth inside an rsp, but SIX TIMES the ROI. The numbers are hard to dispute.

You know what ai really like about investing in Real Estate? It's tangible;

I can stand on it,

I can build on it

I can change it's use

I can subdivide it and unlike stocks, it can't vanish into thin air.

The key to what I'm saying is the word "I". When "I" invest in Real Estate, "I" am in control and "I" can easily understand it. And doesn't that make more sense than blindly giving your money to a company that invests it in something you know little about? After all the word, "Investment" begins with "I".

This is Rob Thompson saying, "Good Luck and Good Investing".