I believe that everyone should have some exposure to commercial real estate in their investment portfolio. One reason I feel so strongly about this is passive income, which I talked about in the last blog post. So, why should you invest in real estate versus other investment options? There are 3 main reasons:
1. Real estate provides better cash flow yields compared to stocks, bonds, etc.
A lot of retirees haven’t saved enough to solely rely on bonds that are yielding 4% or stocks that are kicking off 0%-3% annual dividends. Compare that to the typical cash flow from our real estate investments, which ranges from 8-12%+ annual cash flow.
Let’s consider a person who needs an extra $2,000 a month in cash flow. If they only choose 4% bonds, they would need to invest $600,000 in bonds. Alternatively, they could invest $200,000 to $300,000 in commercial real estate and hit their monthly goal.
2. You’re building equity while someone else pays down your debt.
They say, “You can’t have your cake and eat it, too.” Well, whoever said that, didn’t know a thing about real estate investments!
There is a mortgage payment when we take out loans on our rental properties. As the mortgage gets paid down (read more about principal paydown here) over time, equity is building in the property (without any appreciation). We don’t use the investors’ cash to paydown the mortgage; instead, the mortgage is being paid down by our residents when they pay their monthly rents. That’s having our cake!
As the value goes up and our mortgage is paid down, we can refinance our properties by going back to either the current lender or a new one. This is a tax-deferred event, so our investors get a large chunk of their initial investment back and can redeploy that as they see fit (most reinvest with Wolfe Investments). That is eating our cake, too!
Going forward, the new, higher mortgage is slowly paid off by rental income from the property. Grab a fork and dig in!
3. You can make a difference with your investments.
The value of our investment increases as we improve the property and make it a more desirable place to live. We’re helping real people, families, and the community as a whole. On more than one occasion, we’ve been personally thanked by current residents, local police, and our new neighbors for creating a safer community and bettering the neighborhood. It’s a feel-good business. We help the community and simultaneously increase the value of our asset by offering improved housing options.
Our job at Wolfe Investments is to bring valuable investment products to our investors, create better communities where we invest, and tend to our assets with great care. This allows us to fill multiple needs, and that’s what makes us so proud of what we do on a daily basis.