Get Outside the Real Estate Investment Box

“Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.”

Andrew Carnegie

What Mr. Carnegie didn’t say in this famous quote is that few of these millionaires got that way with simple passive real estate income investing. Sure, there is passive income received from real estate, but the real profits are in taking control and charting your own course, making your own decisions, and actively managing your investments.

REITs, Real Estate Investment Trusts, can be a good decision for some investors. They do not want to make selection decisions, negotiate purchases or deal with tenants. Keep in mind though that there are decisions being made by others that affect your return on investment. Yes, they’re supposedly experts, and there are REITs returning double digits. Keep in mind that you pay for those decisions with fees, so REIT returns must be adjusted accordingly.

Over rolling 10-year periods, the average annualized return of REITs has fluctuated between as low as 3.4% and as high as 18%. Most of that time, the average was in a range between 9% and 12%. Over 30-year rolling periods, the average was between 10% and 13%, so choosing the right REIT can be a pretty good passive investment. Note that these are averages, and some did better, and many didn’t do as well, so you are making one decision that can make a major difference in your retirement.

REIT investors are what we can consider “inside the box” real estate investors. Exchange traded REITs are often recommended by advisors, and they are in many retirement accounts. For many investors, they have done better with REITs than they would have with stocks over the same period. However, we’re still considering investment in REITs to be passive and inside the box.

Getting outside the box in real estate investment really doesn’t require some great idea or untried innovative strategies. It’s just getting outside of the control of others and taking control of your real estate investing. Sure, you’ll be spending time and effort along with your money, but the returns can be far greater.

While you can “own a piece” of residential or commercial real estate through REITs or other packaged ETFs, Exchange Traded Funds, you don’t get your own key, and you can’t make decisions about the properties in which you hold an ownership interest.

Buying income-producing properties, rental homes or commercial properties, you own it and make the decisions. You cut out any other fees for decision makers. Inside the box, you’re taking advice, instruction or decisions of others for your financial future. Outside the box you’re making the decisions, setting the rents, and you hold fully insured investments in one thing that is as important as food; it’s shelter.

When homes aren’t selling well, people are still living somewhere, and many are renting. When inflation rears its head, home prices generally rise, and rents usually rise with them. Interest rate risk is eliminated with long-term mortgages. Take a course, go to a seminar and learn more about how to own and manage rental properties. It’s an easy way to get outside the investment box and grow wealth.

“If you don’t own a home, buy one. If you own a home, buy another one. If you own two homes, buy a third. And, lend your relatives the money to buy a home.” John Paulson, investor & multi-billionaire

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