Why real estate? It’s a question I’m asked whenever I meet a new investor or a fellow real estate enthusiast. It might not be the first question, but it’s certainly in the top three. Up until a few years ago, it’s something I hadn’t given much thought.
Even so, it was never a difficult question to answer, and after answering it so many times, it almost sounded scripted. After giving it some thought, I was able to break down my answer into three main reasons: leverage, creativity, and control. Before I dive into each reason, let me give you a little more insight into what sparked my obsession with real estate.
I was around eight or nine years old when I started accompanying my mother to pick up the rent checks from the two rental properties she and my step-father had. Those trips piqued my initial interest.
I couldn’t believe my mother picked up money once a month and seemingly did nothing for it. They just provided a place for someone to live. I remember asking, “Why doesn’t everyone own rental properties? Actually, why doesn’t everyone own 31?” My thought was that it’d be like getting a paycheck every day of the longest months.
Of course, those questions, along with the simplicity of the answer and the matter-of-fact tone to back it up, could only come from a child.
Shortly after my interest was piqued, I was introduced to the game of Monopoly. Like so many other investors, I became obsessed with the game. I didn’t care how long they lasted; I just always wanted to play.
There was an unwritten rule of every family vacation that we would have one epic game, sometimes lasting multiple days. Board pieces and money would be accounted for when the game was paused. Growing up with brothers, everything was a competition. Board games were no different.
We still have family games to this day. Granted, they’re not as competitive as they once were, but my strategy when competing has stayed the same. My approach in Monopoly is one of the reasons for my obsession with real estate: leverage.
The ability to leverage your money to purchase property makes it easy to get excited about real estate. To buy a property, you need 3.5-25% down depending on the deal, but you generally get 100% of the benefits.
The savvier you become, the more financial tools you’ll have at your disposal: hard money loans, private money loans, cash-out refinance options, Home equity lines of credit (HELOC), and business lines of credit. All these options make it easier to build your real estate portfolio without having to tap into your earned income.
After a couple of deals, it’s easy to see how the wealthy become more wealthy. Eventually, you won’t need to touch the money you earn to buy future deals. At that point, it’s up to you to decide how far you want to grow.
I was never creative, at least not in an artistic sense. You’d never want me to draw you a picture or paint something for you unless it was a blank wall in your home. But I’ve always been creative when it comes to problem-solving and thinking outside the box.
That’s good because there are no shortages of problems that arise in real estate. Finding deals is getting harder by the day. The more creative you are, the better chance you have at locking one down. Once you have one locked down, you may have to get creative with financing it. This could mean borrowing from your equity or partnering up to finalize it. All these situations that could require some creativity are just the beginning.
If any construction is required for your new deal, you’ll get to try your hand at interior and exterior design. Who doesn’t get excited for Demo Day? The nice part about all of this is there isn’t a one-size-fits-all guidebook. Each step of the way could present a new opportunity to learn and grow. That may be why I find it so exciting. All of this leads to my final reason: control.
Real estate is my favorite investment vehicle and, admittedly, my obsession, but it’s not the only thing I invest in. I purchase index funds, individual stocks, precious metals, and even the occasional rare edition book. What I love about real estate that those other investments don’t offer is control.
With real estate, I can control which type of property I invest in, how I utilize it and potentially pivot if my initial plan doesn’t work out the way I thought. With the other investment vehicles, you’re at the mercy of CEO’s and markets, where information isn’t as readily available.
You also get to control how involved you want to be when it comes to real estate. Maybe you don’t get excited as I do about being creative, or maybe only a portion of the things referenced excited you. Take on the portions you want to do and dump the rest. If you want to self-manage, do it. If you have always wanted to rip down a wall or install new cabinets, go for it. It’s all up to you.
Control doesn’t mean that you won’t have the eventual headache, but having control on how you deal with the headache is one of the benefits.
What are some of the reasons why you invest or want to invest in real estate?