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W hy Y ou Should Invest in Real Esta te

Instant Equity

If you buy publicly traded stocks or bonds, you will pay the current market
value for these investments. You may enjoy price increases over time, but you
will not immediately advance your current wealth. Not true for real estate.
You can buy property for less than its market value. Common reasons that
prompt sellers to discount their prices include:

• Financial distress
• Need for quick cash to pursue other opportunities
• Ignorance of the current market
• No eye for entrepreneurial transformation
• Unskilled sales/promotion efforts
• Desire for quick sale, minimum effort
• Desire to avoid paying a real estate commission

Recently, I bought a rental house for $150,000, but the mortgage loan
appraiser placed this property’s market value at $180,000 to $200,000. The
seller lived out of town and had relied on an incompetent real estate agent
for advice.
Such deals don’t come along every day. Periodically, though, you will

find (or negotiate) bargain prices that will increase your equity—and net
worth—instantly.

Optimal Liquidity

Most investment advisors critique property because (they say) it lacks liquid-
ity. According to this widely held view, if you want to cash out your real estate
equity, you may wait months before you can get the property sold. In contrast,
you can cash out stocks (or bonds) on a moment’s notice.
Certainly, if you need cash to pay your bills, don’t invest that money in
property. Place it in a checking or money market account. But you want to
lock up your piggy bank (that’s why the government severely restricts early
withdrawals from 401(k), 403(b), and IRA balances). Easy withdrawal means
too many would-be investors squander their cash savings on exotic vacations,
power boats, and new SUVs.
Fortunately, a so-called disadvantage of property—illiquidity—prevents
impulse spending for expensive toys and extravagances. This fact works to
your wealth-building benefi t.

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