For decades, property or shares have been the most common methods of building wealth across the globe. It’s really a million-dollar debate on which is better, real estate or stocks? Choosing between the two is hard, perhaps there’s no clear answer to what is best. Here in Thailand, Andres Pira, CEO of Blue Horizon Thailand, is a real-life rags-to-riches story with more than 15+ years of real estate experience and 19 companies under his portfolio. Andres has his say on how real estate has made him a billionaire and stocks did not.
Serial entrepreneur and real estate tycoon Andres Pira has chosen the tropical paradise of Phuket, Thailand, in which to reside. It was in Thailand that he reached rock bottom and became homeless before, and also in Thailand where he achieved great wealth. His company, Blue Horizon Thailand is a Phuket-based development company with award-winning projects, such as Grand Himalai & Himalai Oceanfront, The Beach Front, Skylight Villas, Signature Villas, and plenty more.
“When done the right way, real estate investing can provide great returns through rental income, tax advantages and the capital appreciation gained from buying below the market value,” said Andres, “However, investing in real estate is not for everyone. It takes time to learn to competently and confidently invest. It takes perseverance and effort to find great deals, and even more, financial discipline to save up enough money to get moving. Let’s face it: investing in the stock market is much easier and therefore more popular.”
Here are five key reasons real estate investing is better than the stock market:
- Real estate investments provide cash flow and can be a hedge against inflation.
You’ve heard it before, “cash is king.” Whether stocks or real estate, your investments should be paying you cash that you can reinvest or save for your early retirement. Rental properties give a steady source of cash or other forms of cash return offered by the developer. Buying the right properties is the key, of course. What is nice about rental income is that your cash flow keeps pace with inflation. The market price for rental properties automatically rises as the cost of living increases.
You can also line up a big cash payday by buying a “distressed” or foreclosed property below the market value. You can renovate and sell a few months later for more than what you’ve paid — the purchase price, renovation, and transaction costs. You can choose to ‘renovate and flip’ to collect a windfall or hold and rent for steady cash flow. Either way, investment properties can provide cash and a hedge against inflation.
2. Real estate is a market where you can buy lower and sell higher.
Money made in the stock market is by buying low and selling high, but it is nearly impossible for most investors to do so consistently. You can’t possibly know everything about an individual company, its sector, management, competitors, etc. Also, institutional buyers will always have more leverage and know more than you as an individual investor.
Contrast that with real estate where you are dealing with individual properties. Each property is different in location, size, features, and prices. There is no set market for the exact property you are considering.
In the stock market, anomalies are quickly adjusted for by other investors. In the real estate market, there are thousands of little markets. You can always find deals and “buy low.” There are strategies where you can buy low and sell for a high price once you have rehabbed a property.
There are geographical pockets in just about any real estate market where you can “sell high” if you know the type of property that is in high demand.
3. Actively managed real estate provides better returns and lower risk than stock market investing.
Stock market values go up and down. Independent research firms have been measuring the effects of investor activities over both short and long-term time frames since early 1990. They show that average investors are not excelling in capturing the market returns on a simple balanced portfolio, much less outperforming it. Individual investors tend to buy and sell at exactly the wrong times. That wipes out possible gains in an already efficient market where bargains are rare.
On the other hand, real estate is nearly immune to emotional buying and selling. As a less liquid investment, panic selling is almost impossible. You have more facts to make a better investment choice initially when you buy properties. The long-term nature of real estate assets ensures that you hold the property through ups and downs. All the while, rents and property prices rise due to inflation. In general, your risk of loss decreases the longer you hold real estate investments. Your equity builds and home prices rise over time. That is unlike the stock market, where the risk typically stays the same year after year.
4. Real estate investments provide unique tax advantages.
Depreciation is one of the major tax advantages most investors have heard of. What real estate investors appreciate is the fact that you are depreciating an asset that does not often lose value. In fact, property values tend to increase over time. The bottom line is that you receive a tax credit on the cost of an asset that may increase in value, not decrease.
What is more, depreciation is a tax credit that is on top of property upkeep and other costs that you can take away from the rental income you get. It provides a tax deduction that lowers your tax liability, which often means more money that you can reuse to buy more properties, pay back your bank loans, pay for upkeep, or anything else you want to spend on! The tax advantages from rentals can save you thousands of dollars each year.
5. Real estate buyers can use leverage to build wealth.
Leverage is a common tool that many real estate investors use to build their portfolio of income-producing properties. Getting a mortgage or borrowed financial capital to buy a rental property gives you leverage that you can use to invest in more properties (and different types of properties to spread your risk) with less money down.
Of course, you need to critically evaluate your strategy, the specific deal, terms of the loan, and cash payment. You can get easily in over your head with leverage. Being overleveraged greatly increases your risk. Leverage is a tool that needs to be managed and monitored. Any specific property or an entire portfolio can be made risky with high leverage. However, full cash payment on properties is always an advantage.
“I have found that real estate provides many advantages over the stock market. You can make returns of over 10% a year on the cash you invest from rental income. Your investment provides steady cash flow, and residential or resort-managed properties typically always increase in value, providing capital appreciation,” comments Andres.
He further concludes, “I do want to stress that you can’t just go out and buy any property. As a real estate investor, it’s crucial that you buy below market value. That means you need to put in the time, the effort to find deals, and do careful due diligence. Make sure to do your own research and study the background of the builder and developer as well.”
I pass on many more deals than I invest in. Many offers I make are turned down by the seller. It is common for sellers to believe their property is worth more than the market value. They do not know what repairs are needed or what renovations construction costs. They often do not see the issues that make the property harder to sell in its current condition.
Asking prices can be high and offers below the asking price are often turned down. That is just a reality of real estate investing. I have purchased less than 5% of the properties I have looked at in the last 12 months, but the deals I have succeeded with have performed much better than any stock investments I have ever made.”
Andres’s serial businessman spirit has expanded his investment ventures into JustFit Gym, a law office, a gas station, several coffee shops, and more.
To follow Andres, visit www.andrespira.com, FB https://www.facebook.com/PiraAndres/, Official Youtube https://www.youtube.com/channel/UCkbee4TbiXDn8gizi2FXBDg