Momentum - Business to Business Online Magazine MOMENTUM Feb_Mar 2019 | Page 30

JAMES BROCKWAY Broker, CPA Brockway Commercial www.brockwaycommercial.com • 281.684.6482 Why Should I Invest in Real Estate? I n 2018, all major stock indexes lost value. You can earn up to 2.5% interest if you buy a Treasury Bill, or perhaps 3% on a certificate of deposit. With inflation historically at 2% or so, you aren’t really making “real” returns. With an uncertain world economy and the federal reserve raising interest rates, the stock market was greatly impacted as we endured a roller coaster ride in 2018. Are there any other conventional ways to achieve good investment returns? As a real estate broker and investor, I’ve always had an affinity for real estate investing. I can drive by my investment and touch it, I understand the fundamentals and if Greece goes bankrupt, my retail strip center or rented house aren’t going to be affected like the stock market. Don’t get me wrong, there is risk in real estate (just look at the decline in housing stocks in 2018), but I feel that there are less outside forces to reckon with when you own an actual piece of real estate. In its simplest form, a retail center is made up of leases to tenants. I can write leases to protect myself and I can research proposed tenants to find out if Radio Shack is going bankrupt, if Raising Cane’s is expanding and if the local nail shop has a line of customers at the door. I also 28 MOMENTUM know that if all my tenants vacate, there is still value in the building and in the land, so worst case, I could sell the empty building and recoup some of my losses. On the other hand, if I research Microsoft and determine that I like their stock and their future outlook, do I also need to research the Chinese economy and our trade relationships, brush up on North and South Korean tensions and understand the worldwide repercussions if the European Union doesn’t bail out Greece? Since our stock market is tied to the world economy it can fluctuate wildly (from a good and bad perspective). Historically, the stock market has averaged about a 10% increase per year, which is not too shabby. Sprinkled into this history are the crash of the 1930s, the dot.com bust of the 2000s and a few “Panics”. On the other hand, the roaring 20s and the 90s were great decades, with skyrocketing returns. With real estate investments, it’s harder to compare and find a realistic historical average, but I believe that when managed properly, there can be a nice annual return and a steady rise in value in concert with periodic increases in rent. You can also create a higher return by using “leverage”, i.e. putting a mortgage on the property and, you can create equity in two ways: 1) by paying down this mortgage and 2) through good management, securing good leases with reasonable annual rent increases, creating a more valuable investment for the next buyer. Although I believe it’s important to diversify one’s investments across multiple investment types (stocks, bonds, real estate, etc.), when compared against each other, I’ll take real estate. Don’t get me wrong, I do not believe in going “all in” in real estate, but I understand it, whereas I always seem to be the buy high, sell low guy in the stock market. I’ll leave the stock picking to those professionals. Next month, “What Real Estate Investment Options Do I Have?”