The Problem with Investing In Real Estate...

 Who Would Say Such A Thing? You've gotta check this out

What guile? What nerve? What..... were my first thoughts  when I first saw this headline. Someone actually thinks that real estate investing is not the best way to build financial stability and wealth for ones self?  When I found the article titled Problems with Investing In Real Estate by Tony Chou on investwithpassion.com, I nearly flipped my top until I actually read the article. This ninny actually makes a valid point.

Can you believe that?

Tony Chou actually makes a good point. His major quarrel is the liquidity of the asset.  If you are unaware of what liquidity refers to:

Liquid asset is an asset that can be converted into cash quickly and with minimal impact to the price received. Liquid assets are generally regarded in the same light as cash because their prices are relatively stable when they are sold on the open market.

http://www.investopedia.com

Examples of liquid assets are : stocks, government bonds, money market instruments, etc. These assets can be converted into cash fairly easy whenever you desire.

Can you guess what the most liquid asset is ?  I'll give you one hint. I have already said it....

 

Cash is the most liquid asset because it can be immediately used to perform economic activities such buying, selling and paying off debt.   

Chou goes on to say,

" Believe it or not, the liquidity for the real estate markets is terrible. Every time a financial crash comes along, the first market to lose liquidity is the real estate market. Remember the real estate bubble that burst in 2007? There are instantly no buyers. So why is this? The reason behind the lack of liquidity in the real estate markets is that the price per unit of real estate is simply so high. Selling a house typically takes 4 – 8 months."

I don't completely agree with the last sentence, but I understand his thought process. In my opinion, the reason that real estate bubble burst in 2007 was because speculative investors, competing against themselves,  inflated prices well beyond the true market value which made it impossible to sell a property to the end user. Bottom line is speculative investors, who did not have a firm fundamental understanding of real estate investing,  paid too much for their asset. But, this is a story for another day.

Chou explains how buying real estate is different for purchasing stocks:

Buyers typically spend a lot of time haggling and pondering whether or not to buy the piece of real estate. Buying real estate isn’t like buying stocks; you don’t just click enter button and watch your order get filled. Buying and selling real estate takes time, and a lot can happen between that 4 – 8 months. The financial markets can quickly turn from bull to bear. When that happens, the thing that investors in the stock markets want the most is cash (liquidity)..... 

So what does the lack of liquidity in the real estate markets mean for investors? It means a big OUCH. Let’s use an example. You want to sell housing unit A right now for $200,000, because you forecast that the financial markets will crash within 3 months. Once your house is on the market, you wait for 2 months, and then receive a buy offer. But before all the haggling and paperwork and this and that gets done, the housing markets have already dropped, so your buyer says “no deal”. Then you wait some more. The financial crisis worsens.... 

http://www.investwithpassion.com/problems-with-real-estate-investing/

I don't care what Chou says. I will pick investing in real estate over investing in the stock market any day.

Here are three reasons why:

1) Stability- The real estate market is way more stable  than the stock market. We all have heard the characterization of the stock market being, " volatile." There are usually signs when the real estate market is about to take a turn for the worst. The stock market can change dramatically in one day. Do you guys remember what happen to the stock market on September 11, 2001?

2) Ownership- I am the CEO of my LLC and I make the decisions on how my capital is used. The success of your investment depends a lot on your  due diligence and  hard work that you pour into: decisions, strategy, processes, systems, etc.

3) Rate of Return: Real estate investments yield  better rates of returns that any other investment vehicles. Period.

 

Cheers,

Auben Realty- Improving Augusta One Home At A Time

www.aubenrealty.com