I am a big fan of using cash to buy real estate. It gives you more advantages than any other method of acquiring property. I know all of the theorists who insist that you never touch principal. If you put things into context, what they are referring to is using principal for non-investment purposes. Deploying investment capital to build wealth and income is a good thing not a bad thing. Deploying investment capital to purchase doo dads for personal use is foolish. For the purpose of our discussion I want to review the different ways to keep and use money in the various forms of investments.
Savings – This is probably the least effective way to preserve capital. It is however one of the safest. Funds in a savings account are relatively liquid which means you can access them without penalty. Some banks will allow you to withdraw funds one to three times per month. Savings accounts can be a good way to keep an emergency fund on hand. If you have funds in excess of emergency fund requirements then you can safely access for the purpose of buying investment real estate.
CDs – CDs may pay a little more interest than savings accounts, but not much. They do however usually have early withdrawal penalties. Sometimes you simply forfeit any interest you may have earned. CDs may have a place in some people’s lives but not mine. Back in the day when I was a young banker we had CDs that paid 15% and the terms were as long as 10 years. You can bet your bottom dollar that I would gladly own some of those CDs now. Unfortunately, owning a CD now will likely cost you money instead of making it. If you have money held in CDs you may want to consider using it to purchase income producing real estate instead
MutualFunds – There are literally thousands of mutual funds, hundreds of mutual fund companies, and dozens of categories of fund types. I like no-load growth stock mutual funds to hold money long term over and above my real estate holdings. I like money market funds for short term holdings and especially for storing money that I will use to buy more real estate. Bond funds are made up of short term,medium term, and long term bond holdings. You have to know what you’re doing relative to the interest rate environment to invest wisely in bonds funds. Short term bond funds are the least risky but they still do have risks. I generally would not use even short term bond funds to hold money that I will eventually use for purchasing real estate.
Stocks – Investing directly in stocks can truly be risky business. Even seasoned professionals get smoked gambling in the stock market. This is not the place to keep money that you intend to use later to buy real estate. If you are enamored by the idea of striking it rich in the stock market then God bless you and please get a lot of education and tread gingerly into those shark infested waters. If you really want to be in stocks why not consider a mutual fund that invests in stocks. Always look at the management of the fund and the manager’s track record, not just the track record of the fund itself. Also, look at their performance in up and down markets. Good luck!
Bonds – The basic rule with bonds is that you buy when rates are high and sell when rates are low. This is because people will pay a premium for high yielding bonds when rates are low. Plus while you own the bond you can make a decent return. If you buy high grade bonds then your risk is reduced along with your rate of return. The bottom line here is—how do you know when you are in a high rate environment and a low rate environment? Even the pros have a hard time with market timing. I do not suggest that you use bond funds for holding money that you intend to use for purchasing Real Estate.
Real Estate – Ah, real estate. Finally! This is what I am writing this book for. I love real estate, not because I love the business of being a real estate investor but rather because of what owning a lot of real estate has allowed me to do. I used to love real estate for the investing as well, but after I owned a lot of it for a long time it kind of started losing its luster. I still own investment real estate—don’t get me wrong. But what I did during my evolution as a business person wasto start other businesses from the profits of owning investment real estate. I opened a real estate brokerage business, a real estate settlement business, a rental property management business and even an appraisal business. I had plans to start a mortgage brokerage business when the Big Recession hit and all the rules changed… that would have put me at a horrible disadvantage. So, literally within hours of signing documents to launch the business I pulled the plug based on my intuition. It turns out my intuition was correct. I watched as about one-third of mortgage brokers evaporated almost overnight.
The point I want to get across to you is that while you can make money in real estate, owning real estate can make the dream of starting another business in an area of life that you enjoy much more realistic. I know people who started travel agencies, bought horse farms and stable horses, offer riding lessons, and basically pursue their passion for the equine life. I know people who moved closer to the water and started standup paddle board shops, surf shops, fishing shop and charter businesses. The possibilities are endless. If you day dream of faraway places and fun activities owning real estate can help make those dreams a reality. If you are in a W-2, 9-to-5 job, it would be highly unlikely you could ever realize many of your dreams.
I love the dreamers of the world. If it weren’t for dreamers like the Wright brothers we wouldn’t travel by airplane, we wouldn’t use a mouse to control a computer, we wouldn’t talk on cell phones, we wouldn’t drive cars, we wouldn’t vacation in faraway places that would never have been discovered by courageous explorers, and we wouldn’t have a country created so that all men could life freely as equals in their pursuit wealth and happiness. I say dream. Make it a daily practice to spend at least a half-hour dreaming—or what I call constructive day dreaming. The possibilities are endless.
I believe God wants us to be happy not sad, wealthy not poor, healthy not sick. I believe it is our duty to fulfill the purpose that He has intended for our lives, which is to bring others closer to Him. What better way to do this than to be our highest and best selves, living examples of how joyful life can be when we make the absolute most of the precious gift of life He has given us. When you own investment real estate you are providing a good service to your fellow man. You are helping yourselves by helping others first. And herein lies one of the greatest truths of success and that is that if you help enough other people get what they want then you will get plenty of what you want. You can thank Zig Ziglar for that pearl of wisdom which is actually scriptural in its origin.
Now for one of the other pearls of wisdom, I am going to encourage you to not really own real estate. That’s right. You will control it without actually owning it. It is far better to own companies that own real estate. Read on.