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Why Real Estate?

By
Services for Real Estate Pros with CF Real Estate Advisory

Investing is not just about the potential for high returns; it's also about security, predictability, and the peace of mind that comes with knowing your investment won't disappear overnight.  Real estate stands as a fantastic store of stability, tangible value, and enduring appeal.  This is where real estate prevails in a sea of asset classes. 

 

My Preference for Physical Assets

 

Real estate is the epitome of a tangible asset.  It's a physical entity which you can touch, feel, and best of all, directly influence to increase its value.  Unlike stocks, which can fluctuate wildly based on market sentiment, the value of real estate is underpinned by a finite supply.  We cannot manufacture more land, and as the population grows and space becomes more coveted, real estate inherently appreciates.  

 

Think of real estate like a base metal: tangible, finite and practical.  Just like copper or iron, there's only so much land to go around and we use it for everything from building homes to growing food.  When you invest in real estate, you're getting something that isn't just theoretically valuable on paper; it's useful.  This is what makes it such a great investment.  

 

Leverage and Risk Aversion

 

Before I get any slack for shunning stocks, I do think it’s prudent to have a diversified portfolio beyond one asset class.  However, there’s one problem with using leverage in the stock market: you can select the greatest stock of all time and still be margin called because of price fluctuation, evaporating your gain.  In my opinion, a stock’s intraday movement has nothing to do with whether it’s a good or bad investment.  You can mark up a technical analysis to a chart, closely analyze its beta, make sure you’ve done your due diligence to the best of your ability but fail to recognize a stock’s history isn’t indicative of the stock’s future performance.  After all, if fund managers had a crystal ball, nobody would have to worry about money again. 

 

Real estate, conversely, provides a more forgiving platform for leveraging your investment.  The bank isn't looming over your property, hastily knocking on your door demanding repayment because the value of your property dips momentarily as the 4PM bell rings.  Why?  Because it's predicable.  Real estate values don't tend to swing wildly from day to day; they are characterized by a slow and steady appreciation that is more predictable and less susceptible to sudden market shocks. This stability gives both lenders and investors confidence, making real estate one of the safest ways to leverage your capital.

 

The Predictability of Real Estate Investments

 

Predictability is perhaps the most underrated characteristic of real estate investment.  While it is true that no investment is without risk, real estate has historically been less volatile and more predictable than many other asset classes.  Consider fixed-income investments or government bonds – they offer predictability, but often at the cost of lower returns.  Real estate, on the other hand, often provides both a stable investment and the potential for significant appreciation. 

 

As an investor, there’re a few important character traits.  Above all, you must be discerning.  I’ve seen investments that are better on a risk-adjusted basis than real estate, but they don’t come by very frequently.  Let's take the example of feed-in-tariff programs for renewable energy.  These government incentives are designed to accelerate investment in renewable energy technologies by providing long-term contracts to renewable energy producers.  Think of these as having the certainty of a T-bill with astronomical returns.  Unfortunately, the days of 20%+ compounded IRR in renewables are behind us, but we can still admire a good investment.

 

Here's the thing: renewable energy installations, such as solar panels or wind turbines need to sit on huge plots of land, often in the middle of nowhere.  Your underwriting process for the plot of land in this case would be more closely tied to the predictability of government repayment than the credit score of the renter, making its cash flow highly predictable and attractive.  Think, vet, and act swiftly, with conviction; great investments come around more often than you might think.

 

Valuation and Risk

 

In the world of finance, it is a common adage that all models are wrong.  This saying reflects the inherent uncertainty in predicting the performance of most assets.  Public equities, for instance, are subject to the unpredictability of market forces, regulatory changes, and economic cycles.  Real estate valuations, while not impervious to error, are often grounded in more solid and measurable criteria – it makes income potential simpler to forecast.  This makes the risk associated with real estate investment more manageable and the potential for accurate valuation far greater.

 

Real estate pro-formas, although not infallible, benefit from the relative stability and predictability of the asset class.  By examining rental income, market comparables, historical growth rates, and occupancy levels, investors can forecast future cash flows with a degree of confidence that is rare in other investment vehicles. This level of predictability inversely correlates with risk, allowing savvy investors to mitigate potential downsides while positioning themselves for healthy returns.

 

The journey through the landscape of investment options can lead to many different territories, but few offer the solid ground that real estate does.  Its tangible nature provides a sense of security, the strategic use of leverage maximizes capital efficiency, and its inherent predictability offers a buffer against the unforeseen.  For those looking to build a resilient and profitable investment portfolio, real estate is a fantastic foundation and additive. As we move forward in an ever-changing financial world, the time-tested allure of real estate continues to hold a compelling position in the savvy investor's arsenal.

Jude Campbell
CF Real Estate Advisory - Manhattan, NY
Real Estate Advisory Supporting Investor Clients

This marks my second post on ActiveRain.  Glad to be here.  

I was happy to see my first post was well-received.  I hope readers are enjoying my content.  

If there is anything you'd like to hear my opinion on, a topic you'd like me to write about, etc. please post a comment and let me know.   Happy to hear any suggestions.

Jude

Nov 05, 2023 03:15 PM
Sham Reddy CRS
Howard Hanna RE Services, Dayton, OH - Dayton, OH
CRS

Thanks for your blog Jude!!! It makes all the sense in the world!!!

The journey through the landscape of investment options can lead to many different territories, but few offer the solid ground that real estate does.  Its tangible nature provides a sense of security, the strategic use of leverage maximizes capital efficiency, and its inherent predictability offers a buffer against the unforeseen

Nov 05, 2023 06:19 PM
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

We’ll see never really dies that way and you can meet a lot of different people and really get to know the market really well just by hang out for a while.

Nov 05, 2023 10:11 PM
Charles Ross - eXp Realty LLC
eXp Realty LLC Salina Group - Salina, KS
Love To Help People

Jude Campbell, your insight into the benefits of real estate investment is truly motivating and positive! 🏡💰 Real estate's stability, predictability, and tangible value make it an excellent choice. Let's keep spreading the positivity about real estate as a solid investment option! 🌟 #StayMotivated #RealEstateInvesting

Nov 06, 2023 02:36 AM
Richard Weeks
Dallas, TX
REALTOR®, Broker
Great information, thanks for sharing.  I hope you have a great day.
Nov 06, 2023 03:30 AM
Bill Salvatore - East Valley
Arizona Elite Properties - Chandler, AZ
Realtor - 602-999-0952 / em: golfArizona@cox.net

Thank you for sharing the information. Wishing you continued

success. Have a wonderful day and sell a house. Bill

Nov 06, 2023 04:26 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Jude, investing in real estate long term usually does end up a better investment.

Nov 07, 2023 01:04 PM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Jude Campbell Real Estate is a solid investment for the reasons you listed and many more.

Nov 16, 2023 03:10 PM
Brian England
Ambrose Realty Management LLC - Gilbert, AZ
MBA, GRI, REALTOR® Real Estate in East Valley AZ

Your words are wise!  Welcome to the Rain, I hope that you are enjoying it here so far!  I look forward to reading more of your posts and interacting with you.  If you have any questions, please feel free to reach out, I have been in the Rain for a while, haha.

Dec 12, 2023 06:10 AM