Building your wealth through real estate: Ever considered it?
If you look at some of the most successful and wealthy people, almost always, they’re invested in real estate. In fact, about 90% of U.S. millionaires are invested in some form of real estate, said Trevor Shakiba, Certified Financial Planner and the President of Shakiba Capital.
“(These investors) don’t have everything in real estate,” Shakiba said. “And I hear that often too — this idea that it’s either got to be all real estate or all stock market. And like most good things, you want to be diversified.”
As for what exactly “diversification” means, it comes down to keeping your money in different places. Think about this: If your portfolio went down with the market this past February or March, it’s possible that you may not be appropriately diversified, Shakiba added.
“You don’t want all your assets to go up and down with the market,” said Shakiba, adding that real estate can be one of those investments that stays fairly consistent.
He went on to provide five of the top reasons why real estate, specifically commercial or multi-family real estate, is one of the best ways to invest.
1.) Cash flow.
“Consistent cash flow that comes to you month after month is a very powerful thing, especially if it’s passive,” Shakiba said. “As you’ve probably heard before, the number one way to build wealth is to have multiple streams of income.”
Commercial real estate can provide those streams.
2.) It’s a real asset.
Simply put, it’s real. It’s tangible. “And that’s where REAL estate comes from,” Shakiba said.
There are some significant advantages to having a real asset, as opposed to something related to the stock market or something you see just on paper.
“A lot of it has to do with volatility,” Shakiba said. “Real estate, while it is not risk-free by any means, does not go up and down every day without any control by you (or) related to your investments.”
3.) There are major tax advantages.
In fact, because it’s real estate, it has some of the most advantageous tax rules and regulations.
Some considerations to keep in mind: “You have depreciation, passive losses that can pass through to the investor to offset any passive income — not to mention your ability after you sell to defer taxes and even refinance, which is a tax-free strategy,” Shakiba said. “There are huge advantages from a tax perspective when it comes to real estate.”
4.) It’s recession-resistant.
Shakiba made one important distinction here: He’s not saying it’s recession-proof, but commercial real estate is recession-resistant. People will always need a place to live. This is why apartments can be such a smart investment.
If you look at places where you’ll charge affordable rents ($1,200 or less), “This is a great place to diversify and take less risk. And know when everything hits the fan that this is a great asset class that will hold its value.”
5.) It’s an inflation hedge.
If inflation becomes an issue again, and there are data points that suggest this could be the case, you can store your value with commercial real estate.
“You have an ability to pass that risk on to the residents by increasing rents,” Shakiba said.
There’s also appreciation.
“We don’t invest only for appreciation. We’re looking for cash flow,” Shakiba said. “But over time, we know that real estate, in particular with rents and apartments, that goes up. So, your investment value goes up. In a way, you’re getting paid to be patient while you wait for the investment to appreciate.”
Commercial real estate can give you some control: Update the property, decrease your expenses, increase your rent; there are all sorts of things you can do in order to regain that control factor.
Think about 2020. You can’t change the stock market. It’s an election year. We’re in the midst of a global pandemic, and we’re not sure how long it will last.
But you can control some elements of a commercial real estate investment. You’ll be on more of a level playing field.
Shakiba Capital is a Houston-based private equity real estate firm that aims to deliver above-average investment returns with consistent and reoccurring cash flow in non-correlated stock market assets.
The firm specializes in the acquisition and turnaround of underperforming multifamily assets in emerging metropolitan markets. For more information on investing or to get in touch, click or tap here.