Hey there! Munchkin and Ozzie, here.
We’re Ross and Mary’s pups! Dad let us take over the blog this week to give him a little bit of a break during the holiday season. Actually, we’ve been begging (literally) to guest blog and now it’s finally our chance!
We know what you’re probably thinking… “what could two dogs possibly know about real estate or investing?” Sounds a bit far-fetched…
Well, we hear a lot of stuff floating around the house. From podcasts and webinars, to Dad’s (you know him as Ross) phone calls and the books he and Mom (you know her as Mary) read. We wouldn’t call ourselves experts, but we know our stuff.
Still, it’s our first blog so, we wanted to talk about a topic that is pretty simple.
How do you choose which asset class to invest in? Real estate or Wall Street?
This Is So Simple, Even A Dog Could Do It
We’ll make it easy for you: real estate. And here’s why…
We’ve heard Dad talk about I.D.E.A.L. Have you heard these initials before? Let’s break it down…
What Does I.D.E.A.L. Mean?
I Stands for Income
The amount of money the investment property produces is considered income. Cash flow is nice to have — we always like cash flow. And, it’s even better when it’s coming off your investment. You don’t get that with every asset class.
D Stands for Depreciation
Property depreciation can shelter the property income that is distributed to investors. Talk about tax advantages. You don’t get that with most asset classes — at least as far as we’re aware. I’m sure Dad would’ve mentioned it…
The government engineers certain interests through the tax code, in order to encourage us to put our money in particular spaces. They do this to make sure people have roofs over their head, otherwise they’d be after the government for assistance. They don’t want that. By creating ways to write off a portion of their investment cost through depreciation, they encourage people to invest in real estate.
E Stands for Equity Growth
There’s also an expectation of equity growth. Equity comes from the fact that a portion of your mortgage is typically being paid down by a tenant or someone using the property.
A Stands for Appreciation
Appreciation is concerned with keeping the value at or above the rate of inflation, and can come from two sources: a natural increase in property value over time, or value-added activities such as remodeling, expanding or improving the property in some way.
Typically real estate appreciates in value over time and has stayed ahead of inflation in most major markets.
L Stands for Leverage
Leverage is available via funds from institutions and raise capital from investors. Positive leverage is when the after tax unleveraged yield of the property exceeds the aftertax cost of funds.
Typically, there is really only one asset class where you can do this with debt leverage — real estate.
We agree with Dad that real estate is the I.D.E.A.L. investment, and it is where we are putting our allowance!
Before we wrap up the year, we wanted to say a quick Merry Christmas and Happy Holidays! Stay warm, folks!
And as always, when you’re ready to start your journey to financial freedom with real estate investing, we’re here.