To build a personal patrimony we have two traditional alternatives, invest in real estate or invest in stock market.
As in any business, we’ll always looking for:
Minimize the risks
Know the market
Have alternatives and flexibility, make corrections
Avoid higher expenses and penalties
Leverage us as much as we can
Maximize return on investment
For many people looking for a high and rapid return on their money Stock Market is like a mermaid song that can be very attractive. However, there’s some people who like to touch what they get, have control and be responsible for their successes as well as their mistakes. People which are enemies of surprises and stock market does not meet the expectations of safe investment.
Of course, more conservative and risk-free alternatives are offered in the securities market, such as treasury bonds and municipal bonds, to name a few, which have low but safe returns.
There are also other investment businesses that, over the years, we have seen flourishing, such as the purchase of gold or pyramidal business models, but that in a short time have vanished.
Or as today, as fashionable, for example, the crypto-currencies or medical marijuana companies, to mention two of the most recent.
We would like to share with you a personal story about the strategic decision of Investing in the stock market vs Buy Houses.
Shortly after we emigrated to this country, with our family, we were lucky to meet our mentor, our protective angel Mr. Robert, and his wife, Mrs. Eleonor, whom we remember with affection and infinite gratitude and respect.
They were able to build in their mature years, after retiring, a solid financial portfolio in real estate.
We were always struck by their frugal customs of life and consumption, styles that they had acquired since they were very young. Our curiosity led us to ask them how they maintained those habits, despite having an economic bonanza.
The explanation they gave us was that as children they lived with their parents the historic collapse of the stock market of 1929, where their wealthy families lost not only the earnings of the effort of their work but also the inheritance or legacy they had received from their families.
Everything vanished in front of their eyes in less than three days. From the security framework, only memories remain, those events marked them forever.
After the years, with a solid portfolio of real estate and permanent income, they decided to buy shares and invest in the stock market.
Unfortunately they had to live the crack of 87 or the famous Black Monday. Luckily they had a large part of their investments in real estate, which gave them stability and security for their last years.
What we learned from our friends and mentors was that speculative business was just that, or worse, it was quicksand.
We have always thought that stock market is very complicated, due to lack of emotion, lack of knowledge and contacts, too many statistical tables to analyze daily, as well as the volatility of the market and the volume of obsession and stress of each day during the closing and opening markets.
In addition, we must consider the total lack of control. As today our opinion has not changed a bit.
The strategy of investment in stock market vs Buy Houses:
I used to thought that the real estate business was a business for retirees or adults, we saw it a very slow growing business, lacked of action, that it did not have to much options of development and expansion.
How far from the reality … how wrong we were.
Now we do not see it any more as a business model to retire, but rather as a business to obtain financial freedom.
How we would have liked to be instructed and guided when we were young in the real estate business … how much effort and energy we would have saved.
In the real estate business there are many models and we want to show you this example to make money in a solid and efficient way.
To buy properties we have several financing programs and today we will focus on the FHA program that allows us to buy with a 3.5% down-payment a single-family house, a duplex, triplex or even a fourplex property.
As a condition, it is mandatory that you live at least one year in the property. In the case of duplex, triplex or fourplex, you must also live in one of the units for at least one year, but you can rent the other units, which is beneficial, since tenants will be paying your monthly loan.
In other words, someone will be paying for the housing where you live.
It is not about go and buy the first multi-family property that you find. You have to be careful, the numbers must be right, you need to choose with tweezers, check if the area is convenient as well as the neighborhood, etc.
It is a model of real estate investment very convenient and profitable because it allows you to have a leverage of 1 to 10 and after 2 years you’re free hands to repeat the formula and so on.
We can continue showing advantages of how this investment is tangible. Not only are papers, but also you can literally live on it. Income from rent will rise over time, protected from inflation.
Cash out can be obtained quickly in case of an emergency or unforeseen, which allows diversification in other financial portfolios. This investment will have minimum volatility, and it can be depreciated from the first year, and it’ll gain equity. All repairs and improvements made can be deducted at the end of the year.
We do not know of any other investment model that has these characteristics and advantages.
Our final recommendation regarding the strategy of investing in real estate.
First, learn new skills to maintain the property, follow the advice of experts and read about it. If this business allows a profitable return every month, there would be no reason to sacrifice it and sell the cow that gives milk, rather we would try to replicate this model to have more calves.
Undoubtedly, this concept of business will generates financial independence. Maybe, some people will disagree, and say that they have no time to serve tenants, our response is … organization and wisdom to choose well. It’s very important to be advised by experts throughout this process.
Today it is easy to obtain information and knowledge through the internet to reduce failures and build stronger businesses, thanks to the lessons and contributions of those who know more and who have had good and bad experiences that we are going to nurture. and learn, gaining in certainty and security.