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.
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?
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.
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.
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!