10 Reasons to Invest in Passive Real Estate
Before we discuss the benefits of passive real estate, we should first answer the question:
Why invest in real estate versus other asset classes like a 401K, stocks, or the bank?
Here's why:
Tangibility. It is questionable whether ‘tangibility’ is really a word, but you know what is real? Real estate. It is land and a building that you own. With stocks, you own a piece of someone’s idea. It could be the best idea of our lifetime or the best idea of yesterday.
Transparency. We are investing in real businesses, real industries across America. Does that apply to investments managed by the finance industry? Perhaps to some degree, but the success of the stock market does not have the same direct connection to the actual success of a business and their ability to pay their rent. Fees are charged which are incredibly high for funds that only a small percentage of the time outperform the market as a whole. Companies make short term decisions based on what Wall Street is telling them to do. For example, Microsoft and other giants regularly buy back billions of their own stock to affect the share prices. Once companies start playing the game of listening to short-term investors and what Wall Street has to tell them, predicting what will happen to your stock is like analyzing a black hole.
Cash Flow. Let’s get zen here for a second. Stocks are like a seed you plant in the ground, and then you wait 20 years for it to grow into a beautiful plant with beautiful fruits, and when you pick the fruits off, the plant dies and you have to buy a new plant. That didn’t sound very zen actually. But continuing nonetheless, investment real estate is like a plant you buy from Home Depot, fully mature and full of fruits, and when you get home and stick it in the ground, you can pick and eat the fruits right away, and the plant will replenish itself with new ones a month later.
Taxes. Owning a piece of real estate is owning a business. And the same tax benefits of owning a business apply, plus a few extra. Expenses related to operating the business can be deducted. Additionally, so can property taxes, interest expense, insurance, and depreciation. For stocks, you are required to pay tax on dividends and capital gains tax when you sell. When you sell a piece of real estate, you can roll the profits into a new property and defer taxation. For a 401k, while it’s true that you won’t be taxed until you’re 60, this only benefits those who plan to be in a lower tax bracket by that age. Do you? We don’t. Real estate provides an endless source of monthly cash flow, and cruise vacations are expensive.
Debt. Debt allows you to leverage the money you have to buy something of higher value. It also allows you to spread your wealth over multiple properties and investments rather than pooling it into one. Even better, it can be refinanced, or you can sell a property and buy another without ever having to come up with additional funds to pay off the debt.
Inflation. Inflation is one of the many reasons that debt should be your new best friend. Debt today allows me to buy a bigger property than I would buy otherwise. Because of inflation, paying my debt back tomorrow costs me less than paying it today. Rents and market prices also rise with inflation, which means so does your income. There is no such guarantee with stocks.
Now we can answer the question:
Why invest in passive real estate with Iron Peak Properties versus doing it myself?
No time or experience required. It takes time to analyze, perform due diligence, and close on a property. It also takes time, analysis, and responsiveness to oversee property management and leasing. But being a passive investor eliminates this time commitment. Additionally, no experience is needed to be a passive investor with Iron Peak Properties. We have 25 years of experience in this industry and know how things work in real deals, not just in theory.
Lower investment. If you invest a small amount and go it alone, you are stuck with a smaller property. There is more competition for these properties which can mean lower returns. With Iron Peak Properties, you can use the same amount to invest in a larger property with a higher return and no time commitment.
No tenants. Though tenants in commercial real estate are less of a handful than with apartments, there is a significant amount of oversight, interactions, and management required. New leases, lease renewals, repairs, and tenant improvements are a few such examples. As a passive investor, you will not be involved or required for any of these day-to-day responsibilities.
No banks. Working with banks requires a lot of work, as well as good relationships. We will work as the middle man to collect all necessary information from you and negotiate good debt with banks with whom we’ve established strong relationships.
If you're counting, we've hit 10 reasons. But here's a bonus reason:
Receiving checks in the mail is pretty great.
Receiving checks in the mail each month never gets old. It’s like a monthly subscription, to money. Reactions of "wee, I have money!" are normal and to be expected.