Blog | Real Estate

Why Every Woman Should Consider Real Estate Investing

Debunking the conventional myths about this high-performing asset class

There's a lot of great conversation happening these days about empowering women to invest. One problem I see, however, is that much of this advice is only focused on one aspect of investing-paper assets. And sometimes, that advice is even in direct contradiction to other classes of investments.

Take a section of the article, "Five Things Women Should Know About Investing," under the sub-title, "Real estate investments should be avoided":

I would not advise real estate investments at all. Property for self-occupation is definitely required. However when it comes to dabbling in real estate for investment purpose there are several risks: large outlay of one's savings/capital, housing society maintenance costs and other annual regular interiors upkeep costs, loan costs (if loan is taken), builder risks (especially if it's an under construction project), change in surroundings leading to decline in property value, time and effort involved in renting out the property etc. Most real estate investments are subject to steep capital gains tax and they are extremely illiquid.

There are a number of reasons why I think this is bad advice for women.

1. There's more than one way to invest in real estate

   Fundamentally, this advice betrays only one way of looking at real estate investments: from the capital gains perspective.

   Nearly all of the author's objections can be overcome simply by understanding that the primary strategy for investing in real estate should be for cash flow, not for capital gains.

   I have been investing in real estate for decades, both by myself and with Robert, and though we have been tempted, we never invest expecting to flip a property to make a quick gain.

   Rather, we always do a solid assessment of the property to make sure that it will cash flow month in and month out. By doing this we gain significant advantages.

2. OPM is your friend

   Though the author states that a downside of real estate is a "large outlay of one's savings/capital," this has to be considered in context. If you're talking about just straight up dollar amounts, then this could possibly be true. But if you're talking about cash to percentage of value, real estate wins hands down.

   Consider this: on a typical real estate investment, you put up around 20% of the value of the investment while the bank puts up around 80% of the value. And if you're really savvy, you can find investors to cover much of the 20% down payment, limiting your cash outlay, while collecting fees for brokering the deal.

   This allows you to have the potential for a much greater return on investment (ROI). Think of it this way, using round numbers, if you buy a property for $100,000, put only $20,000 of your own money in, and experience $2,000 a year in cash flow, your return on investment is 10%. In other investments, in order to get $100,000 in assets, you'd have to put up $100,000 in cash. In order to get the same 10% in returns per year, your investments would have to generate $10,000 a year in cash flow.

   That in a nutshell is the power of OPM, or using other people's money to invest. You can do it with real estate, but you can't do it with most other investment classes.

3. Your tenants pay you back, and pay down your debt

   With investment real estate, the value comes in the rent generated. This is your gross income. Just like with any business, you must calculate your gross expenses, subtract them from your gross income, and determine if the resulting net income is worth it.

   If you've done your due diligence and found the right deal, you will have a real estate investment that will cover not only your operating costs, like repairs and maintenance, but also your loan costs. The best part, while you collect monthly income, both your initial cash investment is paid back, as well as your loan paid down.

4. Investing for cash flow reduces market risk

   If you're investing for cash flow, you don't have to worry about the market going up or down, nor do you need to worry about liquidity. Because your aim is to collect a monthly amount of money in profit, any gain in value of the property itself is icing on the cake. And if the market dips for a while, you're not worried about the timing of disposition of the property. You simply wait until the market balances again, all the while collecting your rental income. This long-term play is much more steady and much less risky than the pundits want investors to believe.

5. Hidden profit centers

   Finally, the author's advice doesn't take into account the hidden profit centers that real estate provides.

   When it comes to taxes, you can depreciate a portion of your property each year as a loss. This, in reality, is phantom income because it goes directly contra to your stated earned income for a tax year, lowering your taxable income.

   Additionally, any costs associated with the investment are also contra to your income. So you essentially are able to maintain your asset tax-free.

   Finally, if you do sell the property, you can roll your profits into another real estate investment through a 1031 exchange, tax-free.

   

All of these benefits add up to a compelling case of why you should consider investing in real estate, not avoid it. Is it a lot of work? Yes! Is it worth it? Absolutely!