Joe Capote – Certified Investment Agent Specialist Expert in Real Estate Investments and Properties

Where do most people invest their savings? While 401k’s and mutual funds usually come to mind, financial assets only account for 34% of stored wealth. The majority of wealth, 66%, is held in non-financial assets such as real estate, business equity or other vehicles.

It’s important for all potential and current investors to know the benefits of real estate over other investments.

Stocks

Stocks are similar to real estate in that they both appreciate in value, and can pay dividends (called cash flow in real estate). However, the stock market can be a volatile asset because of its daily appreciation and depreciation of values.

The stock market’s volatility can be seen with its performance in the last decade. At the beginning of 2000, the S&P index was at 1469.25. By July of 2000, the index had dropped to 1027.37. That is a decrease of 30.08%.

As far as cash flow, some stocks do pay dividends. Stocks in the S&P index have averages a 1,82% yield since 2000. Real estate offers a distinct advantage with cash flow because the investor is able to make decisions. impacting net income. With stocks, the operations decisions affecting cash flow are delegated to the company officers, whereas with the real estate investor is in control.

Bonds

Bonds function differently than stocks. Rates of return on bonds are fixed because a bond is not a stake in a company like stock. Bonds function as a loan a company will pay back over time with interest. While bonds can be more stable than stocks, they are not liquid, they do not appreciate in value, and the returns are lower compared to other assets, such as real estate. In the last few years, the 10-year Treasury Note, the most frequently quoted government bond, has averaged a 4.46% return.

Mutual Funds

A mutual fund is money pooled together and invested into a variety of asset types, such as stocks, bonds, other mutual funds, and commodities such as precious metals. Placing money in a mutual fund is essentially giving one’s investment decisions over to a professional money manager. Often times, professional money management underperform the general market. The value of a mutual fund’s shares appreciates and depreciates in value; however, cash flow is not paid to the investor.

Certificates of Deposit

Certificates of Deposit, or CD’s, are similar to savings accounts in that they are insured and thus virtually risk free; they are ‘money in the bank’. However, the differ from savings accounts in that the CD has a specific, fixed term (often three months six months or one to five years) and a typically fixed interest rate. CDs are intended to be held to maturity, at which time the money may be withdrawn together with the accrued interest. Unlike real estate, CD’s do not appreciate in value, and they’ve had a historical average return of 3.32% in the last decade.

Real Estate

So how does real estate compare to the other investment vehicles and asset types?

The average sales price for a single-family residence at the beginning of 2000 was $138,000 according to the National Association of Realtors. Over the last 10 years, the average sales price for a single family residence has risen to $179,600. Despite the recent housing crash, the value of the initial investment added $41,600 in value – a 30.14% INCREASE. This means that $100,000 invested in real estate in 2000 would be worth $130,100 today.

It is important to understand that the value of a property is not the only source of income from real estate investments. The cash flow provided by rent is also part of the real estate equation.

If you were to purchase an income property all cash and charged average rent (base on the Censue Bureau averages), the cash flow generated would be $77,755. this means the total value of that initial $100,000 investment in real estate today is $207,855 – a total return of 200.8% – compared to the negative 30.08% return from the stock investment over the same period.

The housing crash has given many investors pause of the last few years, and with good reason. However real estate is a continues to be a key to any balanced investment portfolio. Evaluating real estate investments in San Mateo and San Francisco counties for investors is what I do. Contact me today for more information.