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Why Investing in Real Estate is Better than Finding Gold!

by Mark Ferguson on December 15, 2013 · 8 comments

  
Investing in Real Estate Gold mining

I write a lot of articles about goal setting and personal improvement.

I read a lot of books about how to succeed in life and how to improve yourself.  Just about all those books say you shouldn’t watch a lot of TV, but I’m not perfect and I do anyway.  I try to counteract the negative effects of watching too much television by writing articles on my IPhone while I watch TV and doing something productive.  Many people think I’m crazy for writing this way, but I like it (although it may produce a few typos!)  As far as television, I loved The Office and I was sad to see it go, but I still get my kicks out of reality shows like Gold Rush and I love football (Broncos).

When watching Gold Rush I came to realize that finding gold may seem glamorous, but in reality it’s risky and dangerous.  I think when most of us think about gold mining we think of making it big, but compared to the money invested gold mining is not that great.  I have to admit there is something alluring about mining for gold; I guess that would be because society puts such a mysterious and glorified tint to it.  After watching Gold Rush for years now I have come to realize Real Estate is a much more lucrative and safe (physically and financially) investment than gold mining.

What is Gold Rush?

Gold Rush is a reality television show that details the lives of mining crews in Alaska as the crews mine for gold and try to strike it rich.  They feature small crews, large crews, experienced crews and beginners.  I love it because it shows real life gold miners and wannabe gold miners risking all they have to get rich.  The really interesting thing about the show is the size of the operations that are required to find gold.  The crews are mostly mining in Alaska where the ground may be frozen all year round and there is a small window for mining when everything isn’t buried in snow.  It takes massive amounts of equipment and planning to make any money in gold mining.

If You Thought Real Estate was Expensive

Many people get off to a slow start investing in real estate, because it can cost a lot of money to buy investment property.  To get a great deal you might have to buy homes in disrepair and most banks require at least 20 percent down on investment properties.  There are ways to buy real estate with less money down, but this is article is not about that discussion.

Gold mining on the other hand is crazy expensive unless you want to buy a pan and start sifting through dirt on a stream somewhere.  I don’t think you are going to find much gold panning in a stream.  The crews all need massive amounts of equipment including excavators, bulldozers, wash plants and generators to run everything.  One bulldozer alone costs $150,000 and they have to truck in large amounts of gas to run everything.  From what I have seen it is costing these crews at least $300,000 in overhead before they pay any employees or themselves.  That means they have to mine hundreds of ounces of gold just to break even each season.

I always thought these large mining operations were finding pockets of gold that produced huge results, but the reality is it is a numbers game.  They find mostly tiny specks of gold in yards of dirt; they have to continuously mine thousands of yards of dirt to find a decent amount of gold.

Who Really Makes the Money in Gold Mining?

I believe one crew on the show owns the land they are mining on and the rest lease the land.  When the crews lease the land they have to pay a cut of the gold they mine to the land owner.  The going rate seems to be about 15% of the gold mined goes straight to the land owner regardless of expenses or how much gold is mined.  Much like the gold rush years in the 1800′s it isn’t the miners getting rich; it is the people supplying the miners with equipment and the land owners getting rich.

The one miner who makes a lot of money is not followed on the show, but leases out land to some of the miners.  The show has shown his operation before and it is massive!   He owns the land and a huge company that mines on a huge scale.  He uses proven techniques, hires everyone to do all the work and spends his time driving around collecting gold from other mining operations.

Why is Real Estate Better Than Gold Mining?

I think it is pretty obvious the health and safety risks involved in gold mining.

The crews are operating heavy machinery hundreds of miles away from hospitals or doctors.  They are working in cold weather around water all the time as the wash plants need a lot of water to wash the gold out of the dirt.  They work 7 days a week from dusk until dawn and sometimes through the night.

They are also in Alaska so the days are much longer in the summer than we are used to.  All of this work, money and danger and many of the crews barely break even at the end of the seasons.  Some crews lose money, yet they keep going back for more!  With real estate we get to sit in a warm office look for comps or call people.  With real estate we get to plan our own schedule with little physical labor, unless you want to fix up a house yourself.  With real estate we get to rent a home and let the rent checks come in without working constantly to produce income.

Who Do You Want to Be?

This all boils down to who you want to be.

Do you want to be the  gold miner working 14 hour days, 7 days a week with no guaranteed returns?  Do you want to be the land owner who negotiates the lease, lets someone else do all the work and takes a piece of the operation no matter what happens?  Of course not all real estate investing is that easy, but the ideas are similar.  The gold miners are working their tails off, trying to run a business and do manual labor all at once.  I believe we all need to strive to create business that can run itself or close to it.  Real estate is the perfect opportunity to start a business that can run itself and be duplicated over and over.

>Photo: ralphrepo

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{ 8 comments… read them below or add one }

Geoff December 15, 2013 at 7:50 pm

Mark, I have also been watching the show, nice comparison.

Reply

Mark Ferguson December 16, 2013 at 7:14 pm

Thanks Geoff!

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Gerald Harris December 17, 2013 at 11:49 am

Great Analogy!
There are aspects of real estate that are residual income based. As a former real estate agent I remember putting in hours of work in growing my business. At times it was a 10 to 12 hour a day job. The rewards we great, but I had to continue to do it all over again. As time went on I began to open my mind up to other aspects of real estate like lease options and owning rental property. These 2 alone, when done correctly will definately give you control of time and money. In real estate residual income is key. Its money coming in with little to none of your own time going out.

Reply

Mark Ferguson December 17, 2013 at 7:07 pm

Gerald, I couldn’t agree more!

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Susan Cain December 19, 2013 at 7:36 am

Mark,
I don’t know any gold miners. And I never watch ant reality shows. However, I am a firm believer in diversification. I began investing in Gold Coins at $300/oz. At the moment gold is at $1200+ It has been up to $1900/oz. I’m sure it will go higher, but it will never return to $300. I’m just sitting tight. My Real Estate holdings include, luxury Condominiums, First lien Mortgage Notes, and tax Lien Certificates. I’m about to put my primary residence on the Market. I briefly considered renting it out. But it’s a SFR and I’d need a PM so I decided to sell instead – less headache. I’ll turn the proceeds into a Mortgage Note or Notes.

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mark ferguson December 19, 2013 at 5:03 pm

Very nice Susan, I don’t diversify much, but I don’t mind high risk/reward.

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Pete December 19, 2013 at 4:24 pm

I like the comparison. It shows the strength of ownership and leasing (renting). I dont think there is anything wrong w/ watching too much tv. You have to have hobbies and something you do that you enjoy. Otherwise its all just work!

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mark ferguson December 19, 2013 at 5:04 pm

Thanks Pete, I figure I am getting educated while watching!

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