Why real estate?

Real estate has always been the most powerful type of investment
for building wealth.

Our clients come from different backgrounds.

Some clients have existing portfolios which they are looking to expand with minimal effort. Other clients are high net worth individuals requiring a specialist company to diverge their own investment portfolios into real estate.

Newer clients, who do not have a real estate portfolio but see the benefit of developing one, use the appreciation (equity) found in their homes. This includes many Baby Boomers facing retirement.

As far as we at PDS are concerned, real estate investment is, and always has been, the most powerful type of investment for building wealth. 9 reasons why real estate is a good investment

1. Real Estate is a good hedge against the possibility of re-emerging inflation in the global economy
2. Rental properties offer a stable source of income
3. Real estate always has residual value; prices will never fall to zero, unlike shares and hedge funds
4. Real Estate is a hybrid asset - it has the capital appreciation of a stock but the income producing capacity of a bond
5. Investors typically have more control over the nature, timing, and size of real estate investments
6. Real estate is an excellent collateral security against loans
7. Real Estate portfolios offer great scope for diversification of risk into different property types, locations, and rental levels - minimize interruption to income flow
8. Can invest in different US and international markets to reduce any individual risk
9. The reason real estate is such a powerful way to build wealth is due to one key concept: leverage.

Leverage is your ability to magnify your returns by using other peoples' money (in this case, it's usually the bank's money).

To give a clear example, say you have $100,000 to invest. This can be a lump sum or an equity release from your main residence.

There are essentially 3 ways you can invest this money…

1. Place the money in a bank
2. Invest in the stock market
3. Invest in real estate

So what is the best way of investing this money?

Option 1: Place the money in the bank

Stick it in your local bank! Some say this is the safest option. With a bank, you have an assumed return of 4%.

After one year, your $100,000 investment would be worth  $104,000

After five years…$121,665

After 10 years…$148,024

As you can see, after 10 years, you've made virtually no progress at all, especially when you consider the effects of tax and inflation.

Option 2: Invest in the stock market

Investing in the stock market has been very popular. However, we cannot accept it is a better bet. People are constantly talking about a real estate crash and how the stock market will go up more than real estate over the next few years. Without taking leverage into account, this paints a very distorted picture!

It's hard to say what sort of return you might get on the stock market, but let's say you get 12% a year for the next 10 years.

After one year, your $100,000 investment would be worth  $112,000

After five years…$176,234

After 10 years…$310,585

We would agree that is a better return than just putting the money in a bank! But before we get too carried away, let’s consider real estate.

Option 3: Invest in real estate

One of the great things about real estate is that it enables you to leverage the $100,000 to purchase a $1,000,000 investment property. Now, say the property market slows down to an average of only 6% return for the next 10 years. Maybe this looks on paper to be a poorer investment considering a possible 12% return for the same period by investing in the stock market? Why 6%? Well this would probably be a fair estimate in the U.S., since historically real estate has appreciated 6% per annum on average.

After one year, your $100,000 investment would be worth  $1,060,000

After five years…$1,338,226

After 10 years…$1,790,848

So even if the stock market increases by twice as much per annum as the real estate market over the next 10 years, you can make far more money from real estate.

For purposes of simplification, we have not included attorneys’ fees and agents’ commissions. Admittedly buying property has more additional costs than buying shares, but this would not make a significant difference on your profits, even taking into account any annual expenses required for the real estate.

We have also not taken into account the time required to invest intelligently. The advantages of investing in real estate are not realized without plenty of research, legwork and experience. But that is where PDS can help you.