I was recently reminded of some of the reasons that real estate continues to be an attractive investment. The fillowing summarizes points noted in "How to Get Rich in Real Estate...And Have a Life" by Wayne and Lynn Morgan where they compare real estate investing to investment in mutual funds:
MUTUAL FUNDS VS REAL ESTATE AND OPM - You cannot use OPM to buy a mutual fund. If you called your banker and told him you had a great deal that you could buy for 30% less than its value, what do you think he or she would say? Your banker will, on the other hand, loan you money for the purchase of real estate and compete with each other for your business!
CONTROL - With mutual funds you provide the money and the fund managers control it. With real estate, the bank provides the money to me and I control it.
LEVERAGE - When you buy a $10,000 mutual fund you have to put up $10,000. You can use the $10,000 to buy a $1000,000 investment property and thus own a $100,000 investment for $10,000.
APPRECIATION VELOCITY - If both of those investments increased in value by 10% the mutual fund would be worth $1,100. The real estate would be worth $110,000! A 100% return.
CASH FLOW- A mutual fund probably will not produce cash flow on a monthly basis. Real Estate will.
TAX ON GAINS - If you sell mutual funds for a profit, you will have to pay tax on the gain. If you sell real estate and do a 1031 exchange on investment property or live in your home for two years you will not have to pay tax on the gain.
LOSS OFFSET- If money is lost on mutual funds, only $3,000 per year can be offset against other income. Real estate losses can be offset against other income. If you suffered a $30,000 loss in the stock market, only $3,000 per year could be deducted from taxes while a real estate investment resulting in a $30,000 loss would result in a $30,000 tax deduction.
ADDED VALUE - Institutional investments (stocks, mutual funds, IRA's, Keoghs, etc.) are made with the hope that they will increase in value. There is nothing you can do yourself to add to the value of that asset. With real estate it is possible to add significant value through rehabilitation of the property.
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