Why invest in real estate

Some thoughts on why property is the best type of investment for most people

If you are a financial advisor, art dealer, rare coin merchant or ostrich farm salesman you may be getting ready to fire off an email telling me how your investment opportunity will show me a better return than my flat at Cronulla. And I believe you.

That is like saying Cathy Freeman can run for the bus faster than me. Sure she can. But I will still catch the bus. Just because one investment shows better returns does not mean that your investment is a bad one. A profit is a profit.

An art dealer recently showed me that artworks by renown Aboriginal artist, Ningura Napurrula, have a growth of 70% per year for 5 years. That does not mean I am going to sell my property and buy artworks. I don't know anything about the next big thing in art.

Understand your investments

I like investing in property because I know what a house is. I have lived in houses or units all my life. I know the difference between Mosman and Marrickville .I can easily find out and compare market prices. I understand no more land is being made. My chances of success are far higher if I get involved with something I understand.

It's pretty simple really. Find a house. Get a mortgage. Find a tenant. Collect some rent. Pay some bills. Wait a few years. And just like magic you will find yourself richer than when you started. You might wonder if you could have made a better return by investing in the share market. Regardless, you will be richer both financially and emotionally from the experience. It doesn't even matter if you pay too much for the property. Time will heal that mistake for you.

Give me a loan. I want to get rich

There must be people out there who are good with their money. People who can plan and stick to a budget. People who can pay their credit card balance every month. To those people I give my warmest congratulations.

These people are better than me at managing money. I have tried. Believe me, I have tried. Saving is plain hard work. And there are so many easy ways to justify not adding to my savings plan this week. It is rare for me to achieve my savings goals. Experience has shown me the only way I am accumulating any wealth is by being in debt to a bank. There is something compelling about having to make regular mortgage payments. Something mysterious forcing you to pay back the loan. I am debt propelled. So have a good attitude towards your lender. They really are helping you to accumulate wealth.

People will say that you can borrow money to gear into shares and other investments. This is true. But property has something few other investments offer. Property has poor liquidity. This means it is hard to turn into cash quickly. It is also a complete package. You can't just go and sell off a bedroom to get some quick cash. Some people could suggest that these were negative features. To me they are gold.

Whenever I find myself lusting after a greater return or how clever I would be to put all my money into uranium mining the hassles associated with selling out of my property keep me hanging in there. And we both know that 10 years from now my property is probably going to be worth double what it is today. And I get regular rental income along the way. You have got to be happy about that.

Enjoy your investments

Two years after we bought our first investment property my wife and I were looking at the real estate section of our local paper. We hadn't really been keeping up with prices or trends. It suddenly dawned on us that our investment had grown $50,000 since we bought it. We could hardly believe it. It must be how lotto winners feel. Money for nothing. We did a victory dance around the lounge room. If our BHP shares had risen $50,000 in 2 years we would have probably taken a profit and likely celebrated our windfall by spending some of it on a holiday. As our new wealth was locked up in a property we left it there to continue to compound along.

Property has other benefits.

You can drive past it any time you like.

You can admire it's features and congratulate yourself for being so wise.

You can even take your Mom for a look and bask in her admiration for her genius offspring.

You can enjoy telling your brother in law how you have just put a new tenant into your investment property.

It is great for your sense of self esteem.

You can take a photo. Try doing that with your shares.

You get a shiny key.