10 Great Reasons To Invest In Real Estate Instead Of Paper Assets

Here are 10 reasons why we think it is much better to invest in real estate than in any other investment vehicles — they are the reasons WE invest in real estate.

  1. In Real Estate, we can insure our property for its full replacement value, against loss. We cannot insure paper assets against any type of loss.
  2. In Real Estate, we can put $10,000 as a down payment to buy a $100,000 property and get $90,000 from the bank. We now own $100,000 of assets. If we put $10,000 into paper assets, we get only $10,000’s worth of asset.
  3. If the value of your $100,000 property increases by 5% in one year (which is below average in Ottawa where we live and invest), we are $5,000 richer. If our $10,000 paper asset increases by 5% in a year, we’re only $500 richer.
  4. The bank will loan us a lot of money to buy property—millions if we want to buy an apartment building or a commercial building. That’s using OPM—Other People’s Money—at its best! We can also go to mortgage brokers, hard-money lenders, etc. The bank will NOT loan us a penny to invest in paper assets. And forget mortgage brokers and hard-money lenders. We have to use OUR own money to buy paper assets.
  5. Certain types of properties will generate cash flow—called passive income—which is taxed at a much lower percentage than earned income. We can’t get cash flow from paper assets (unless a mutual funds pays monthly dividends). And that is a capital gain which is taxed at a higher %.
  6. Though we have no control over the real estate market as a whole, we have control over the “value” of our property—which we can increase by doing minor improvements, full rehab, keeping full occupancy, changing the vocation of the property. We have NO control over the stock market or over the management of our paper investment; there’s nothing we could do to increase the value of our paper assets.
  7. There are all types of depreciation and expenses we can legally use to reduce the income from our real estate investments. For example, when we travel to other provinces or other countries to look for property to invest in, those travel expenses are a legitimate tax deduction. Try to do that with paper assets!
  8. Real estate is REAL. We can drive by it and SEE our investment. We can live in it. We can pain it. We can add an extension to it or plant a tree in front of it or add a patio behind it. Paper assets are just that: a piece of paper.
  9. We can form partnerships with many other investors—family, friends, or total strangers—and together we can buy big properties that will yield remarkable ROI. Just imagine going to family and friends and say “Hey, let’s pool our $50,000 together so we can buy a whole bunch of shares of Nortel or some petroleum company…”
  10. But most of all, we invest in real estate because it provides a roof (or a hundred) over people’s head. And it allows us to give people with past credit problems another chance to own a home or live in a safe and sound apartment or condo. It’s a great feeling, a feeling we can’t imagine getting from calling a broker and buying a bunch of stocks.

There are more reasons why we prefer to invest in real estate ourselves, but those are the 10 main ones.

[Article by Daniel G. St-Jean & Laurel R. Simmons]

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  • Hah I am honestly the first comment to this amazing read

  • No Name

    I love real estate as much as the next guy but I see a few incorrect facts here:

    1) Technically you can… options… derivatives are basically insurance against certain movements whether up or down (calls or puts)

    2) As for April 19th 2010 Non-owner occupied residences (rental properties that are single family homes) that want to be CMHC insured need at least 20% down. So most banks won’t lend to someone at 10% anymore (And since your post is from May 28th, 2010 I would’ve assumed this would be noted). Of course this is major banks and most major lenders. If you find someone willing to lend more without CMHC fees then you could’ve probably talked about zero down strategies even…

    3) Leverage also works the other way… look at the states

    4) Margin is a loan the bank gives you to buy paper assets… and the leverage you can do in the Forex market is much greater than even on real estate (200 to 1)

    5) Depending on the type of dividend… dividends are usually taxed at a lower dividend rate… unless it is the passthrough variety through income trusts…

    6) True

    7) From what my accountant has told me the travel expenses and such are not always claimable even if you buy a property… he stated it would have to be a fairly significant investment for CRA to really accept it wasn’t just a holiday.

    8) Fair enough

    9) Lots of successful investment clubs… people do pool money to buy and discuss paper assets…

    10) Fair enough

  • Would you mind enabling rss feeds, because this page is difficult to read on my phone. Don’t mean to be a complainer, but I figure if it would help me it would probably help others as well. Thanks 🙂

    • I need to figure out how to do that… Any tips? 🙂