Why Invest in Real Estate?

I was recently challenged by a client to tell him why Real Estate would be a better investment for him then other investments.  Here was my responce.

 I am grateful for the Challenge of why should someone be in Real Estate. I guess although I have been able to quantify that question and have looked at those issues I have been in Real Estate for so long and have realized it to be the best way to secure long term wealth that I have not needed to answer that in a long time. I am grateful for the chance to work with you. I wanted to let you know that much of my investing is in my clients. I find them great deals so they can make money and I get great friends, partners and I get to meet your friends through my client's referrals. My business is based on making clients happy. So why would investing in Real Estate be a good idea? I would love to use the numbers we talked about as an example.

Let's assume you invest $400,000.00 into a stock or bond. With this Bond we will assume you get a 10% return on your investment. This would mean that for every year your money is in this investment the value of your whoop out money is increasing by $40, 000.00. Over a 25 year period this would return $4,333,882.38. Depending on the investment tool this amount could be taxes.  This assumes the investment is compounding itself.

Now let's look at how the money performs invested in Real Estate. Let's assume you place $400,000.00 into a real estate investment. You leverage your money and use this $400,000.00 as a down payment on a property worth $2,000,000.00.

If we assume a small appreciation of 3.5% the property would go up in value $60,000.00 per year the money stayed in this investment. Assuming this investment compounds on itself that appreciation over the same period of time would make the building worth$ 2,726, 000.00 more dollars then you paid for it. Your total investment would be worth $4,726,489.97. Although this number is larger then the return you would receive from investing in stocks with real estate you would get so much more. I have not yet mentioned that on your taxes you can depreciated this asset over a 27.5 year period of time. This depreciation would be saving you money on your taxes each year. I also have not told you that every year this property is held you are collection rents in the amount of 13,683.33 per month. Your mortgage payment on this property would be 8785.59 per month so in this investment you also are collecting positive cash flow of $4,471.00 monthly this is an additional 40k a year assuming no rental rate increase.  (Of course rent will go up)   Real Estate also can allow you to defer your taxed amount with a tool called a 1031 exchange.  Come tax time with this investment you keep more of your profit.

In a few final comparisons I would point out the real estate does not need to have the high return rate of a stock investment to return a similar amount of money.  I believe this is evidence that Real Estate is less risky.  As we can see with the recent stock correction stocks can lose value just like Real Estate.  However Real Estate does not have a 4% correction in one day.   Real Estate is also insured if the place goes down in flames your investment still has a return.  I know stocks can be hedged but your typical stock investment can go down in flames (Enron, WorldCom, etc) and you will see no return on your investment.  These are the basic reasons I believe Real Estate to be the best wealth building tool around.