Why investing in real estate made me a millionaire and investing in stocks didn’t

Martin, our money man and principal investment partner, emailed us last night and simply said, “I’ve lost pretty much everything”. We were looking for a commercial property to diversify our investments. Martin was once again our partner in the deal we found provided he was happy with the numbers.

At least, that’s what he intended to do before the markets crashed and Martin lost his six-figure deposit! Now that he’s sitting on pennies (ok, not quite, but definitely not enough to put down a million dollar industrial property down payment), Martin is probably really wondering what so many other people are doing: “Is real estate a lot better investment than stocks? ?”

My answer is always a resounding “It depends” or “Diversification is best”… but if you change the question and ask me where my money is invested, 90% of my money and net worth is in real estate (even without mine current home).

And yes, I’m young – I’m in my early thirties! I’m a millionaire too, and it’s all thanks to real estate. That’s not to say stocks won’t make you rich, Warren Buffett is an extreme example of the wealth that can be created from stocks, but I like real estate because:

  1. You can kick it! Real estate is within reach. You can drive past a piece of property and tell your friends or family that it’s your property. You can also check how to do it. This is not so easy if you only own shares in a company. There’s nothing to show your friends and family, and most companies won’t let you attend their meetings to see how they’re doing!
  2. Leverage: If you have $16,000 to invest (which I started 7 years ago), you can buy $16,000 worth of stocks and bonds. But if you buy real estate, you can buy $160,000 worth of real estate (which is exactly what I did). While some stock investors are able to buy on margin (if you’re only paying a portion of the stock’s value), it’s a sophisticated and risky move that only experienced stock investors typically make. If your shares appreciate 5%, you’ve made $800. But if your wealth increases by 5%, you’ve made $8,000! This is on the same investment of $16,000. That’s not even counting the other ways real estate can be used to make money…which brings me to my third reason why I love real estate.
  3. There are three ways to make money from real estate: Appreciation we discussed above, rental income and other people’s (your tenants’) money paying off the mortgage. Even if your property goes down in value, you still get rent, and that rent pays off the mortgage, and the excess after the charges are paid goes into your pocket!
  4. Control: As a shareholder in a company, you have no control over your investment. And you never really know what goes on behind closed doors. I don’t have to start naming the corporate disasters of the past decade like Nortel, Enron, and WorldCom for you to really understand what I’m saying! But with real estate, you are in control! If the electricity bill is too high, you can replace the lightbulbs with more efficient ones, seal the windows and take other measures to reduce costs. If you lose money, you will find out very quickly! And you can take steps to improve this situation. What can you do with stocks when your Nike stake falls 15%? You can sell more or buy more… that’s it.
  5. Creative ways to make money. A simple stock investor has two main ways of making money from stocks… appreciation and dividends. I once owned stocks that paid dividends. The $30 check once a year was incredibly rewarding. Since you are in control of your property and there are three different ways to make money from property, there are many creative techniques to try to make more money from your wealth. Some people rent the garage separately from the house. In the right place, you could sell billboards, or simply get discounts for work done in exchange for some publicity (have you ever asked a painter what kind of discount you get for their work by putting up one of their signs on your lawn? ? ), you can add vending machines or laundry facilities, you can change the density of the property (add more units…more units means more rent) or you can change the use of the property to sell it to someone who can use it better (if you’re in a commercial area, an office developer might want to pay big bucks for a properly zoned lot to develop on). There are dozens of ways to use creativity to turn a simple house into a moneymaker. The same does not apply to stocks.
  6. Access equity without selling the asset. In the example of the $16,000 I used to buy my first investment property, I kept most of that money in mutual funds and GICs. When I paid out, I had to pay tax on the winnings! So while I actually had just under $20,000, after the government took their cut I only had $16,000. With real estate, if you need a chunk of cash, you can refinance a property or take out a secured line of credit against the equity you have built up in the property. This means you can continue to make money off the rental income from that property AND someone else will continue to pay off your mortgage AND as property values ​​go up, you will continue to have an increasing asset AND you’ll get the money you need – without paying taxes too!
  7. Speaking of taxes… Real estate has many tax advantages. Taxes vary by province and state, so I won’t go into all the different benefits…but suffice it to say there are many ways to write off expenses from your income, write off interest on your mortgages, and reduce principal receives taxes.

With so many reasons to love real estate, I couldn’t go back to the markets. That doesn’t mean you should too! Real estate isn’t a very liquid investment, and once you own it, you still have work to do (unlike stocks). It’s a personal choice, but I know that Martin, our money man, wishes he had never put his money in the hands of his trusted stockbroker. Even on our absolute worst real estate investment, we broke even… and in less than 2 months he lost 40% of his money… and even worse for him, he lost a significant portion of the down payment he was trying to use that Buy commercial property. Maybe some of the stock will bounce back, but he’s afraid much of his money is gone forever.