For most Americans, especially those in the lowest income class, the majority of their wealth is tied to their primary residence.
While they can do so much better, at least these individuals are participating in home ownership and hopefully increasing property values, while simultaneously having already locked in a low interest rates obtained in previous years and taking advantage of debt pay-down with over the life of the mortgage with the future’s (less valuable) dollars. However, Americans can take it further by utilizing real estate as a true investment.
My definition of investment is an asset that generates income during its holding period and later returns to you both your principal and growth in value.
This is precisely what real estate does.
Many middle-class Americans focus on stocks as their primary investment asset class. And while many have generated large increases from exposure to these growing stock values over the years of economic expansion, there is little control of these assets and cash flow during the holding periods (even dividend paying stocks do not produce dividends that will allow you to quit your job).
My argument is that many who have “done well” with stocks were lucky in that they participated in the growth during expansion and did not invest with fundamentals. Even so, for the many that did invest in a disciplined manner, such investment does not provide control of the asset and investors cannot “add value,” as they are largely trusting that management and majority shareholder owners are leading the company to continued profitability.
But what if there was an investment class that allows owners to leverage more value than they initially invest to control the asset, provide the ability to add value and equity during ownership, pay you for owning it while it appreciates in value, all at the same time? Never in a million years…actually, yes it exists. Real estate.
For the above reasons, my belief is that everyone should own real estate.
Whether actively or passively investing, there are many approaches and strategies that fit one’s needs. In any economic environment, real estate has generally grown in value – prices are rising and rents the same – and owners benefit long term from this wealth even against the devaluation of the dollar.
Finally, real estate allows the savvy investor to develop a new approach to wealth (find out whether passive or active investing is right for you), one that is not centered on the declining dollar. Wise investors know not to keep too much exposure to the dollar in their portfolio, so they want to put their cash to work in assets that not only produce more cash but serve as hedges against the inevitable decline of confidence in the dollar.
Real estate will always be around as long as people need roofs over their heads. For this reason, everyone should have real estate in their wealth portfolio.
