Real estate has always been one of my all-time favorite asset classes for a handful of reasons and to no surprise it’s one of the top performing investments year to date thanks to 41-year high inflation!
If you want to follow the top 1% or above, the best holding period for real estate would be forever and in order to generate more FCF, you can always borrow against your holdings to accumulate even more.
One of the reasons rents are soaring is due to the housing market currently pricing out potential homeowners. If you can’t buy, you have to rent or move back in somehow!
Those who didn’t jump fast enough on the home buying spree when Millennials were fleeing for their lives at the peak of the pandemic in 2020 are officially priced out.
In most of the country, real estate is overpriced, above 20–40% the suggested listing price and in more rural parts of the country, ‘ghost cities’ similar to those in China are popping up all over the place with too much supply, not enough demand to appeal to future homeowners. Homebuying officially feels like a burden and a sunken cost for many. In my city of NYC, median rents officially crossed the $4k per month mark and it doesn’t seem like there’s any slowing down.
Whether you’re a homeowner trying to build equity or a stable renter, owning real estate doesn’t have to only include owning a physical tangible asset that requires maintenance, repair, patience, and 20% down these days. Whether it be through REITS, crowdfunding opportunities in the heartland and Sunbelt states, or real estate outside of single-family properties, it is a strong suggestion to tap into one or all of these investments for your portfolio to benefit from more utility, passive income, and appreciation.
One of the most precious aspects of real estate is the time vs. effort result. I believe there’s no better investment than putting more effort (renovations, time, tenant check, inspection, etc.) and seeing it work for you and of course, pay dividends for you in the end. It’s a rewarding process to take care of something and earn more passive income based on the time spent. Rarely is that the case with any other investment, except for maybe farmland. Plus with real estate, you have control over how much you can actually earn and set the market price! What better bargain than that!
Now, given real estate is based on market and economic conditions and the bubble is growing, you can only add so much value to your home before no one wants to pay 50% above asking or 5–7x the median rent but eventually with time and persistence in this tight hot labor and housing market, eventually some buyer, foreign or domestic will come along!
Own It Or It Eats You
Once you’ve gotten to the stage of settling down in your primary residence and having almost paid and refinanced your mortgage off after 10+ years, as a homeowner you will feel on top of the world with a euphoric feeling of accomplishment and security finally knowing you finally own a part of the American Dream. Alongside this irreplaceable feeling that came with time and diligence, you also feel relief in what you can finally let go of since for the first couple of years as a homeowner, renting doesn’t feel that much different since the home ends up owning you with all the various repairs, costs, moving, inspection, lawyer, broker fees, etc.
Whenever an investor first acquires an asset or buys into an investment, for the first few months to a year, negative cash flow and regret are expected. It can come in a variety of forms depending on the investment. From recurring costs to time up-front, negotiation to even regret! This last cost can be mainly attributed to buying into crypto too early or selling too late. Many are currently feeling the punch with many coins down more than half their value! Thank goodness real estate isn’t that volatile and in fact non-correlated to large swings in the market. It is a safehaven after all.
No matter if you choose to diversify your real estate exposure outside of your primary residence through private investments in crowdfunding or simply stick to acquiring a rental nearby, treating real estate and the rest of your investments as relationships in that what you put in is what you will get out is a fair way to know what to expect in return.
Given there’s more of a tangible reciprocal result from holding and maintaining real estate than just buying more shares of Tesla stock, real estate investors tend to grow a sense of appreciation with their properties and even tenants leading them to become addicted to buying up even more!
In sum, if you put more energy and effort into something, in this case seeking the most prized tenants that will stay forever and not have to bother raising their rent in return, you will reap greater rewards later on. On the flip side, the less effort you put in upfront doubling down on your future tenant’s records and skipping the blind interview, the costs will incur later on and you will start to feel owned for longer.
Put in the work and the work will work for you.
With real estate taking up more than 50% of my net worth at 21, I know I can afford to be less risk averse and take on more bets while I’m still young and bold yet it doesn’t feel as tempting as it should be given ownership is such a precious feeling.
While time is on my side, I continue to stick to real estate for the beneficial cost-benefit analysis payoff. When it comes to owning equities or bonds, sure, I could buy more shares of my favorite FAAMG company yet more shares won’t require more work nor make me feel incremently better or proud and as a result, I’ll feel less of an owner given I have less than a .001% stake in most public companies even if I purchased a couple hundred thousand dollars worth of stock.
The ownership aspect of investing in public markets is still there but the work behind it isn’t found which ends up driving appreciation and satisfaction as a real estate and private market (VC) investor.
Although large-caps aren’t comparable to tangible liabilities for obvious reasons when considering appreciation benefits, the feeling they both possess is initially similar. When it comes to depreciating items Americans foolishly acquire by going into credit card debt, these items rarely tend to serve customers past the purchase. Just like the best feeling of a trip is during the booking and planning process, when purchasing a car, it tends to follow the same depreciating hedonic wave.
This is a similar feeling to owning stock especially due to the lack of control and barely any effort required to maintain. Unless you purchase items that are handcrafted or one-of-a-kind memorabilia treasures you will synthetically seal and never use forever until your grandchildren try to resell them at Christie’s for 200x its value in 100 years, they aren’t always useful to have forever and in fact will feel they own you even if locked up in the basement or attic.
The truth is, the more you collect and own, physical goods or possibly even shares, the more it takes up physical and mental space, clutter and dust.
Clear space, clear mind after all.
Investments such as real estate that will serve you beyond yourself by being able to maintain a loving home for someone while feeling a sense of ownership as an owner/landlord and comfort generating recurring monthly income is freeing.
No piece of property or artwork will pay dividends right away, hence the more risk taken to acquire it in the first place. You will have to go through the feeling of being owned for a while before you can start owning it.
You always have to start somewhere and somehow! Expect to feel owned and obliged to it for some time. That’s how you build the connection and responsibility to it to eventually have it trust you back to take care of it in return!