I realize that I will likely ruffle some feathers in the financial and real estate industries as well as the media by exposing these truths, but someone has too! Enough with all the B.S.!
As a CA I was taught that stocks and mutual funds were the way to go. Sound familiar? What B.S.! Now I know that I, along with most Canadians, have been duped into this way of thinking!
The above quote by Neil deGrasse Tyson (which incidentally is almost identical to the quote by Morpheus of “The Matrix” movie fame… Who knew?) “What if I told you.. It’s OK to change your opinion based on the newest evidence?”, is exactly how I felt when I first gained my own first hand evidence indicating that I was much more likely to achieve real financial freedom and wealth, with much lower invested capital and risk, by investing in properly purchased and great real estate assets than if I invested in so-called great blue chip dividend paying stocks.
Worse still, the way the media analyzes real estate investing is extremely flawed since most seem to like to compare our own personal homes to stocks, which is nuts! It’s like comparing the price of your car to the value of your car’s automakers stock! The former is what you as a consumer would pay for the car, while the latter is more indicative of how well the company is run, how it performs from a profitability perspective, how many cars it sells in relation to it’s peers, etc,. All this from from a fundamental perspective, with technical stock analysis adding yet another layer to the equation. Regardless, I fail to see what exactly one really has to do with the other?
As not only a CA, but a professional real estate investor, coach and agent specializing in investment properties, what concerns me, my partners and my clients most is whether the rent we receive from our tenants will cover all of our out of pocket costs for each property PLUS leave us with positive cash flow in our pockets each and every month. We are also concerned with the optimal monthly inflation adjusted cash flow we expect to receive for a given property once the mortgage is fully paid off several years down the road. This, by the way, we consider our very realistic and easily quantifiable retirement income estimates.
Bonus: Once we make a purchase, our initial investment is known and relatively fixed, notwithstanding of course any unforeseen repairs required on the property down the road which normally get paid using monthly accumulated cash flow reserves regardless. With stocks on the other hand, at best this remains a moving target with little degree of certainty.
Better yet, we can very realistically depend on the cash flow from our real estate investments in retirement, and quite possible indefinitely, without any need to liquidate any of our investments or capital and regardless of whether either the real estate or stock market crashes at any point in time upon full mortgage payout. This I can assure you is not the case with stock and bonds investing.
This is rarely the case when investing in stocks, since no financial planner, advisor or guru can truly say and estimate with any degree of certainty how much dividend and interest income you will earn in retirement, say 10, 20 or 30+ years down the road. If they do, I suggest you run elsewhere… and fast! Sure they can sell you guaranteed income with intrinsic volatility protection attached (in various forms), but these will come at a very high cost and premium to you as an investor and a very high profit to them as an advisor! As always, buyer beware.
Don’t believe me? Ask almost any baby boomer who has or is about to enter their retirement years, whether their “conventional wisdom” stock and bond portfolios that they were advised on purchasing and maintaining by so called “professionals and gurus” will actually enable them to realize the income promised to them 20, 25 and even 30+ years ago, when they first started to invest sometime between the 1970’s and 1990’s. You may find their answers very enlightening, if not utterly disturbing, indeed!
Remember those “Freedom 55” commercials? Does anyone truly know of anyone who retired at 55 years of age by utilizing this supposedly sage “common wisdom” advice? If you do, please let me know. I would like to interview them!
But I digress…
How exactly then, does my own personal home, which I do not view as a true real estate investment, rather simply a place I call home, plays into the stock vs real estate comparison equation is beyond me. This however, is exactly what the media pundits, gurus and all the financial planners, in their infinite wisdom out there believe is the best example of indicative real estate investment returns. What B.S.!
Unlike a true real estate investment, our personal homes do not typically generate any monthly cash flow as there is no rent collected monthly (who would you charge rent to, yourself?) and you, instead of a tenant, are paying for all the utilities and are responsible for all the maintenance, such as snow removal, grass cutting, etc.
Did I mention that the only returns considered by the media and so-called “financial gurus” out there when doing such a flawed comparison is strictly and exclusively house or condo price appreciation? Really? What about monthly cash flows or the annual mortgage being paid down our my tenants, net of any maintenance and vacancy allowance, which are the key components we used to estimate and calculate our annual real estate returns? In fact, we never count on any price appreciation whatsoever in our decision making process. Instead we concentrate on the latter. Why? Because counting on price appreciation, regardless of whether you are investing in stocks or real estate is akin to “speculating” NOT “investing. Here’s why:
Let’s say your real estate investment, is your full time job. I consider the cash flow and mortgage paid down by our tenants monthly to be our weekly or bi-weekly salary. We expect to receive this income simply by coming to work daily and doing your job. Filling our properties with great tenants and taking great care of them is no different in this regard.
What about that home price appreciation almost all the media and gurus seem to be concentrating on? Well to me, my partners and clients that is something we all would consider our year-end bonuses if we continue to use a “full time job” in this analogy. Do we know what the amount of the bonus will be? Will there be any bonus at all? The answer, for the vast majority of us, is a resounding NO!
Yet it is the “year-end bonus” or real estate price appreciation that is the only thing the media and gurus are concentrating on when analyzing real estate as an investment! Crazy right?
For perspective, this is akin to those same media and gurus only counting on a stock appreciation. It’s like they are saying, you know what, let’s forget about all those stock dividends, you know… those things that have made up the vast majority of the stock market returns over the past 100 years (akin to real estate investment monthly cash flow). Let’s forget about those company share buybacks (akin to real estate investment monthly mortgage pay down). Instead they feel the need to only and exclusively concentrate on POTENTIAL stock (real estate) appreciation. This is obviously not the case when these parties analyze stocks, then why would they do this when analyzing real estate investments?
Exactly in what convoluted world can and should my own or your own house therefore be used for the purposes of directly comparing real estate investment to stock returns? This is truly beyond me and simply and absolutely absurd, yet the media and the entire financial industry continue to bombard us with this hogwash, B.S. analysis and data!
It’s time to think again, question the “conventional financial planning” Cool Aid we have been forced to drink all our lives, and come to our own opinions based on the plethora of empirical evidence to the contrary!
Is it not time to take our financial destiny into our own hands rather than relying on the incomplete, inaccurate and sometimes even outright false data we have been force fed and continue to rely on to this very day? You know, that same information that is only serving to make so many of those gurus, pundits and so-called financial advisors rich instead of their clients?
Is it not time to put a stop to all the financial planning discombobulation out there?
Is it not time that you insist on financial freedom and retirement plans from financial advisors that will actually work to enable you to achieve your dreams and goals of living your own Cloud9Life?