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
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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?”