4 Reasons to LOVE Owning Real Property (Over Stocks, REITS & Notes)

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How many times have you seen people ask whether it’s better to invest in real estate or stocks/mutual funds? What about investing in a REIT versus a rental property? What about notes versus rental properties? What about flipping a property versus owning a rental property?

There is a category embedded in those debates that I want you to consider: real property.

What is real property?

When you hear this term, it is referring to owning an actual property. So if you own your own home, or you own a rental property, or you own an apartment complex — in all of those cases, you actually own the property. That property is real property.

Now look back at those contenders: real estate versus stocks/mutual funds, REIT versus rental properties, notes versus rental properties, and flipping versus rental properties. Which of those include owning real property? How about I answer it with which ones don’t involve owning real property? Stocks/mutual funds, notes, and REITs. Flipping technically does involve owning real property, but it’s in a different fashion than what I’m talking about here, so I won’t include it in my list of things that aren’t inclusive of real property, but do know that flipping does not give the perks I’m about to mention.

So, about those perks…

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4 Benefits That Only Real Property Can Get You

Instead of arguing the pros and cons of real property versus all of those other options, I’m just going to tell you the major benefits of owning real property, and then you can decide for yourself how they stack up compared to the other options.

Some of these benefits do come in to some degree with the other options for investing, but in my opinion real property is the only way to get all of these in full swing.

Control

Here’s to all you control freaks out there! Don’t even try to pretend you aren’t out there because I know you are. I can say that because I used to be one myself (ask me another day what broke me of it). Let’s put this into perspective. How many people out there are absolutely petrified to invest their money? Maybe they aren’t scared forever, and there are a few guerrillas out there who just dive in with no fear, but for the most part, the idea of dumping a (potentially) very large sum of your own personal money into something can be quite daunting.

So then explain to me exactly how it is that so many people are comfortable investing in stocks, for example. Once you put your money into that investment, what can you do to help contribute towards the success of your investment? Nothing! You are 100 percent reliant on other people to make that success happen. And if things start to go haywire, can you do anything to save your investment? Not really, other than pull your money out super fast and run away!

If you own a property yourself, on the other hand, you have full control over what is done with or to that property. Even if you have a property manager running it, you still have control over them and can hire and fire them as you deem necessary. You can make improvements if you deem it necessary, you can choose who your tenants are, you get to decide how to allocate funds, and ultimately, you have final say. You have full control! Isn’t that kind of a relief to think you can actually do things about your investment?

Related: 3 Reasons You Should Consider Putting Your Money in Real Estate (NOT Stocks)

Appreciation/Equity

You’ll see this one the most with the other contenders, but it’s still absolutely amazing with real property. If the value goes up on your property, you can bank it. You can let the equity sit, you can refinance the property and pull it out, you can sell it for the upped value, or basically you can do whatever you want, but the money is YOURS and no one else’s.

Tax Benefits

This is a secret one a lot of people don’t realize or think about! When you own an actual property, such as a rental property, the tax benefits you can receive on it are fantastic. First, you get to write off all the expenses associated with the property (yay!). Second, and the big mamba jamba, is you get to write off depreciation. I won’t go into details about what this is, but basically the IRS believes that properties decrease in value over time, so they let you write off that amount of wear each year. This write-off can be huge for your returns.

Ultimately, what can and should happen when you own real property is all of the write-offs will equate to the income you receive on the property, becoming tax-free income. Don’t think that’s all that special? That could be a 30 percent increase to your profits! Oftentimes not only will this give you tax-free income, but it will even give you more money for your pocket on top of negating what would have been income taxes.

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Related: How to Best Calculate the Improvement Ratio to Increase Annual Depreciation

Winning From Losses

This should technically be listed under tax benefits as well, but I think it’s worth making its own category (in case you are like me and just skip over any paragraph that talks about taxes). If you experience a loss in income on your real property, you can write off that loss. Not only does that add to your write-offs, but talk about a sanity-saver in helping with a loss! Losing money in real estate, or anything for that matter, isn’t fun for anybody, but at least being able to report that loss can make you feel like there is still some small glimmer of light out there.

Some people will argue that stocks or REITs or notes or whatever are more passive and less risky. To be clear, owning real property can be as passive as you want it — it all depends on how you structure it. Risk, I don’t know, I can’t say. But to me, I still feel like there is less risk involved with something that I am in direct control of myself (told you I have my control freak moments!).

If you invest in things other than real property, what are your reasons for doing so? What do you like about those options better?

Let’s talk in the comments section below!

About Author

Ali Boone

Ali Boone(G+) left her corporate job as an Aeronautical Engineer to work full-time in Real Estate Investing. She began as an investor in 2011 and managed to buy 5 properties in her first 18 months using only creative financing methods. Her focus is on rental properties, specifically turnkey rental properties, and has also invested out of the country in Nicaragua.

19 Comments

  1. Brock Adams

    Like the article Ali and the great points and benefits you made as it pertains to real estate. I do invest in other areas beside real estate but only because I wish to diversify more across other asset classes. Although the control issue is important on any level of investment just make sure if you give up control at any level that the return is good enough to justify it.

    • Ali Boone

      Hey Brock! Great comment, and I totally agree about just making sure the return is good enough to justify the lack of control. I say it all the time–I’m fine with higher risk, as long as the projected returns are enough to make up for it or justify it. It’s all about the trade-off.

  2. Luis Melendez

    Awesome article Ali. The tax benefits to me are the best when owning real estate. I was watching a video Robert kiyosaki was saying made so much sense. As a working individual collecting a paycheck every week you are paying the government taxes. Taxes were designed to make the working class foot the bill. As a business owner or real estate investor we get tax benefits. Your telling me I could own a piece of real estate. Collect cash flow every month and at the end of the year the “depreciation” can offset the cash flow I receive allowing me to potentially keep all of my cash flow. The only problem is when you sell you have to pay all that back. But wait your telling me i can 1031 exchange to another property and keep all of my money!!!! Basically it doesn’t make sense to work all your life. And even though I currently work full time to pay the bills my exit strategy is in motion with a 5 year time frame to leave the 9-5!!!!

    • Ali Boone

      Ha, Luis, I love it! “But wait, now you’re telling me {insert another awesome thing}??” It’s like the overnight infomercials. But wait! If you purchase this amazing lipstick in the next 2 minutes and 16 seconds, we will DOUBLE the offer!!

      Kidding aside though, you really did hit the nail on the head. A lot of people aren’t into Kiyosaki, but I think he’s a total champ and he definitely nails out the understanding of how money and working/investing really works.

      Thanks for writing in!

  3. Matt R.

    Good article. Keep in mind you will have passive limitations loss (10k?) if you don’t work at least 750 hours as a broker/manager/developer. The tax write offs for improvements are spread out over 27.5 years too. Spend 10k on improvements 2016 is not a 10k write off.in 2016. It will be less than $500 to write off.

    Reits people like because they are 100% passive, pay no corporate tax, pay dividends and offer high quality assets for as little as $20. They have out performed the S&P, have no personal expenses and have no Murphy’s Law attached like a single owned property. By law 90% of profits are returned to investor. Most holdings are stable NNN tenants like banks and care facilities. Before Reits only the very wealthy were able to invest in these type of properties.
    Stocks and Reits are an entirely different animal. REI is hard to compare. Perhaps all three can be good to own still.

    • Scott M.

      So on a commercial property, you are not able to expense a major repair in the same year? For ex. If you put a new $20k roof on a property, that expense is split up over “x” amount of years? What happens if you sold a few years later….you would only recoup a small percentage of that expense?

      • Ryan Flanagan

        Scott,
        What you haven’t expensed in depreciation gets added to your taxable basis. For tax purposes it’s basically treated as though you paid that much extra for the house. If you pay more for a house, you have less in taxable gains when you sell. If you have less in taxable gains you pay less in taxes.
        In short, you still get that benefit. Make sense?

      • Erik Nowacki

        Scott, you can expense “repairs” and have to capitalize (i.e. depreciate over a period of years) capital improvements. You can depreciate improvements over the useful life of that improvement. I’m not an expert on this area, but if you put in new carpet, you could depreciate that expense over 5 years and if you replace a roof, you could depreciate that over 10 years. It will get very messy after a while…

        I try to expense everything I can. For example, if you replace a complete roof, you have to capitalize and depreciate the cost; but if you replace only half of a roof, you can expense it as a repair in the current year. Therefore, I try to do my roofing projects one half roof at a time…

        There are many more games you can play to insure maximum deductions.

        Erik

    • Ali Boone

      They definitely can, Matt. Every route you can go will have different pros and cons, and there’s no right or wrong answer unless you compare the options (pun not intended, ha) against your goals and you choose an option non-fitting to the goal. But even then, it’s still not a wrong way to go. The only real wrong way to go is to get into something that is projected to lose money from the get-go!

      I don’t with any properties needing improvements, so can’t speak to how the taxes or write-offs work on those.

  4. Steve Vaughan

    Thank you for writing this, Ali. A reminder of why I love real estate even though selling a portion of my portfolio makes sense for me right now. Instead of turning to asset types I have no control over and have fewer tax benefits (like mutual funds) I may invest in RE out of area like you do as well!

  5. Brenda A.

    I am a little upset today because I have been subscribing to and trying to comment on as many posts as my job permits for about 16 months now. That is when went to a RE seminar by Than Merrill and decided to try to become a RE investor. I was then and I am still now a newbie to RE investing I haven’t made a purchase yet. I have been reading as you all suggest and trying to learn as much as I can. I learned from you guys that I should join my local REIAs and I have done that recently and have been networking within 3 of them in LA and I am at the point where I am ready to jump in and try to wholesale, buy and flip or do something but there are a lot of things I find to be disturbing about RE investing. For instance, I work hard and I do not have enough money to subscribe yet to your paid forum but I am learning from your unpaid emails that you send me and now It seems that you are questioning whether I am a real person and why is that ? You have my real name and my real email address so I suppose it is because I still haven’t joined your paid forum. Which is only because I have a lot of bills to pay right now and I can’t afford to have anyone take monthly payments out of my bank account yes I would love to join but just plain can’t afford to do it right now. You have my info and you are welcome to call me to discuss this. If you don’t have my phone number then contact me at 818- 451-8869 PST any day and if I don’t answer please leave a message My Name is Brenda Leisa Alexis and my message says this is Leisa please leave a message and that is what I need for you to do and I will call back ASAP if you identify yourself.

    • Ali Boone

      Exxxxactly, Casey 🙂 One of my favorite perks of it 🙂 The other way to get some killer appreciation play is to buy at the infancy stage of a market’s growth cycle. I only buy full rehabbed properties, usually closer to market value, but I was just able to pull some mad cash out of them after only 3 years because I bought at the beginning stages of the cycle. So even if someone doesn’t want to deal with rehabbing, appreciation options are still out there! (not as much right this second because we are closer to the top of the market, but the cycles are always up and down!)

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