Why Most Americans Are Investing in Real Estate, Not Stocks | Real Estate Investing

Why Most Americans Are Investing in Real Estate, Not Stocks
Is Real Estate Really the Best Investment? Americans Think So ...
Simple Ways To Invest In Real Estate - Investopedia
Americans top investment choice: Real estate - Financial Security ...
Time Hacks For Part Time Real Estate Investing (Part 1)
How to Get Started in Real Estate Investing | Zillow Blog

Why Most Americans Are Investing in Real Estate, Not Stocks

Posted: 07 Aug 2015 12:00 AM PDT

David McNew/Getty Images

If you've been hesitant to dip your toe in the water when it comes to investing in stocks, you're not alone. A recent Bankrate survey found that just 17% of Americans agreed that stocks are the best way to invest money that won't be needed for at least 10 years. The two most preferred means of investing were cash (23%) and real estate (27%). Men were more likely to choose real estate as their preferred investment method while women were more likely to turn toward the safety of cash investments such as savings accounts and CDs.

Millennials take a more conservative route

The survey also took a look at preferences when divided according to age. Surprisingly, younger respondents chose reduced risk over higher returns, while older respondents were shown to be less risk averse. The results found that millennials have the highest cash preference when compared to all other age groups. Those between the ages of 30 and 49 were more likely to favor real estate investing.

College-educated prefer stocks

Those with more education tend to be drawn to stocks. One group where interest in stock investing remained high was households headed by college-educated individuals. This may be due in part to more knowledge about how stocks work and a deeper understanding of the long-term benefits versus short-term risks.

Additional research findings:

Source: Thinkstock

Among those who favored stock investing, gold and other precious metals ranked fourth on the list, garnering a 14% vote. Bonds came in last, with a vote of 5%.
When survey respondents were asked how they felt about their job security compared to 12 months ago, 22% reported feeling more secure and 14% reported feeling less secure during this time period. These numbers are down from 29% and 9% in June.
Consumers are feeling less confident in their ability to save for a rainy day. Roughly 29% of respondents reported being less comfortable with their savings level compared to 12 months ago, while 18% say they are more comfortable.

Why do Americans prefer real estate?

Bankrate says many Americans remain fearful of the stock market's short-term volatility, and would rather give up higher long-term returns than take the risk. They mention that although the S&P 500 has risen 27% over the past two years, Americans are just three percentage points more likely to turn to stocks now than they were two years ago.

"Most Americans are still not embracing the stock market for long-term investment horizons. Many still fear short-term volatility more than they desire the higher long-term returns," said Greg McBride, CFA, Bankrate.com's chief financial analyst.

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Is Real Estate Really the Best Investment? Americans Think So ...

Posted: 22 Jul 2015 09:52 AM PDT

Last decade's housing bubble is becoming a distant memory. Mortgage rates are near historic lows, interest-only loans are back and everyone loves real estate as an investment again.

More than 1 in 4 Americans (27 percent) said real estate was the best investment for money they would not need for at least a decade, according to a new Bankrate.com survey of 1,000 investors. Cash came in second with 23 percent of investors, only 17 percent said the stock market is their preferred place for long-term money and just 5 percent said they would put their long-term money in bonds.

It is the first time real estate has taken the top spot in the three years Bankrate has been conducting the survey. Cash was investors' favorite in 2013 and 2014. "It begs the questions if more Americans are once again viewing real estate as a golden ticket," said Greg McBride, chief financial analyst for Bankrate.

Credit is harder to come by than a decade ago and lenders face more regulations, but financial advisers say many clients are catching the real estate bug again.

"Just last week, a high-tech corporate boomer client with no experience in renovating and selling real estate told us he wanted to go into flipping a property with his friend, who does this for a living," said Jon Ulin, certified financial planner and managing principal of Ulin & Co. Wealth Management in Boca Raton, Florida. His client wanted to liquidate 25 percent of his IRA to invest in the project and told Ulin it would "diversify" his portfolio.

Is it time to rebalance your retirement portfolio?

"I advised him that putting a quarter or more of his life savings into flipping and renovating one property with the hopes of making a possible 14 percent profit is not a good idea and a gamble," Ulin said.

But real estate has curb appeal that other financial assets can't match.

"For many investors, the tangible nature of real estate simply offers much more peace of mind than the intangible nature of stock and bonds," said Stephen Doucette, a certified financial planner and vice president of Proctor Financial in Sherborn, Massachusetts. "Real estate pricing also adds peace of mind to investors as pricing seems more stable because it is not updated daily by the media."

Investors should weigh the long-term return potential of real estate investing compared with other assets.

This key retirement savings fix is falling short

The S&P/Case-Shiller 20-City Composite Home Price Index, which measures the value of residential real estate in 20 major metropolitan areas, has generated a hearty annualized 9.2 percent return over the past three years through June 30, but produced an annualized 0.4 percent loss over the past decade. Meanwhile, the S&P 500 index, a broad measure of the U.S. stock market, grew an annualized 14.8 percent over the past three years and 5.87 percent over the past 10 years.

But investors with good credit can borrow to buy real estate, which can enhance returns — or magnify losses, depending on the market. "The singular and best reason to own real estate as an investment is to use leverage," said Stephen Lovell, a certified financial planner in Walnut Creek, California. "Without it, your return on investment tends to be about 2 percent to 3 percent."

Image: A sold sign at a new home development under construction in Nashville

Simple Ways To Invest In Real Estate - Investopedia

Posted: 10 Jun 2006 04:03 AM PDT

Buying real estate is about more than just finding a place to call home. Investing in real estate has become increasingly popular over the last fifty years and has become a common investment vehicle. Although the real estate market has plenty of opportunities for making big gains, buying and owning real estate is a lot more complicated than investing in stocks and bonds. In this article, we'll go beyond buying a home and introduce you to real estate as an investment.

Tutorial: Exploring Real Estate Investments

Basic Rental Properties
This is an investment as old as the practice of landownership. A person will buy a property and rent it out to a tenant. The owner, the landlord, is responsible for paying the mortgage, taxes and costs of maintaining the property. Ideally, the landlord charges enough rent to cover all of the aforementioned costs. A landlord may also charge more in order to produce a monthly profit, but the most common strategy is to be patient and only charge enough rent to cover expenses until the mortgage has been paid, at which time the majority of the rent becomes profit. Furthermore, the property may also have appreciated in value over the course of the mortgage, leaving the landlord with a more valuable asset. According to the U.S. Census Bureau, real estate has consistently increased in value from 1940 to 2006, then proceeded to dip and rebound from 2008 to 2010. (To learn more, read The Benefits of Mortgage Repayment and Understanding Your Mortgage.)

There are, of course, blemishes on the face of what seems like an ideal investment. You can end up with a bad tenant who damages the property or, worse still, end up having no tenant at all. This leaves you with a negative monthly cash flow, meaning that you might have to scramble to cover your mortgage payments. There is also the matter of finding the right property; you will want to pick an area where vacancy rates are low and choose a place that people will want to rent.

Perhaps the biggest difference between a rental property and other investments is the amount time and work you have to devote to maintaining your investment. When you buy a stock, it simply sits in your brokerage account and, hopefully, increases in value. If you invest in a rental property, there are many responsibilities that come along with being a landlord. When the furnace stops working in the middle of the night, it's you who gets the phone call. If you don't mind handyman work, this may not bother you; otherwise, a professional property manager would be glad to take the problem off your hands, for a price, of course. (For further reading, see Tips For The Prospective Landlord.)

Real Estate Investment Groups
Real estate investment groups are sort of like small mutual funds for rental properties. If you want to own a rental property, but don't want the hassle of being a landlord, a real estate investment group may be the solution for you. A company will buy or build a set of apartment blocks or condos and then allow investors to buy them through the company, thus joining the group. A single investor can own one or multiple units of self-contained living space, but the company operating the investment group collectively manages all the units, taking care of maintenance, advertising vacant units and interviewing tenants. In exchange for this management, the company takes a percentage of the monthly rent.

There are several versions of investment groups, but in the standard version, the lease is in the investor's name and all of the units pool a portion of the rent to guard against occasional vacancies, meaning that you will receive enough to pay the mortgage even if your unit is empty. The quality of an investment group depends entirely on the company offering it. In theory, it is a safe way to get into real estate investment, but groups are vulnerable to the same fees that haunt the mutual fund industry. Once again, research is the key.

Real Estate Trading
This is the wild side of real estate investment. Like the day traders who are leagues away from a buy-and-hold investor, the real estate traders are an entirely different breed from the buy-and-rent landlords. Real estate traders buy properties with the intention of holding them for a short period of time, often no more than three to four months, whereupon they hope to sell them for a profit. This technique is also called flipping properties and is based on buying properties that are either significantly undervalued or are in a very hot market.

Pure property flippers will not put any money into a house for improvements; the investment has to have the intrinsic value to turn a profit without alteration or they won't consider it. Flipping in this manner is a short-term cash investment. If a property flipper gets caught in a situation where he or she can't unload a property, it can be devastating, because these investors generally don't keep enough ready cash to pay the mortgage on a property for the long term. This can lead to continued losses for a real estate trader who is unable to offload the property in a bad market.

A second class of property flipper also exists. These investors make their money by buying reasonably priced properties and adding value by renovating them. This can be a longer-term investment depending on the extent of the improvements. The limiting feature of this investment is that it is time intensive and often only allows investors to take on one property at a time.

REITs
Real estate has been around since our cave-dwelling ancestors started chasing strangers out of their space, so it's not surprising that Wall Street has found a way to turn real estate into a publicly-traded instrument. A real estate investment trust (REIT) is created when a corporation (or trust) uses investors' money to purchase and operate income properties. REITs are bought and sold on the major exchanges, just like any other stock. A corporation must pay out 90% of its taxable profits in the form of dividends, to keep its status as an REIT. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed its profits and then have to decide whether or not to distribute its after-tax profits as dividends.

Much like regular dividend-paying stocks, REITs are a solid investment for stock market investors that want regular income. In comparison to the aforementioned types of real estate investment, REITs allow investors into non-residential investments such as malls, or office buildings, and are highly liquid, In other words, you won't need a realtor to help you cash out your investment. (For further reading, check out How To Analyze Real Estate Investment Trusts, How To Asses A Real Estate Investment Trust and The REIT Way.)

Leverage
With the exception of REITs, investing in real estate gives an investor one tool that is not available to stock market investors: leverage. If you want to buy a stock, you have to pay the full value of the stock at the time you place the buy order. Even if you are buying on margin, the amount you can borrow is still much less than with real estate. Most "conventional" mortgages require 25% down, however, depending on where you live, there are many types of mortgages that require as little as 5%. This means that you can control the whole property and the equity it holds, by only paying a fraction of the total value. Of course, your mortgage will eventually pay the total value of the house at the time you purchased it, but you control it the minute the papers are signed.

This is what emboldens real estate flippers and landlords alike. They can take out a second mortgage on their homes and put down payments on two or three other properties. Whether they rent these out so that tenants pay the mortgage or they wait for an opportunity to sell for a profit, they control these assets, despite having only paid for a small part of the total value. (For more on taking out a second mortgage, read Home-Equity Loans: What You Need To Know and Home-Equity Loans: The Costs.)

The Bottom Line
We have looked at several types of real estate investment, however, as you might have guessed, we have only scratched the surface. Within these examples there are countless variations of real estate investments. As with any investment, there is much potential with real estate, but this does not mean that it is an assured gain. Make careful choices and weigh out the costs and benefits of your actions, before diving in.

Americans top investment choice: Real estate - Financial Security ...

Posted: 21 Jul 2015 05:00 PM PDT

investing

By Janna Herron â€¢ Bankrate.com

The crash in housing prices that walloped the economy over the past decade no longer seems to haunt Americans as it did during the recession. For the first time in three years, real estate was the most popular investment option in a survey that accompanied Bankrate's Financial Security Index.

When asked what kind of investments made the most sense, 27 percent said they'd invest in property if they had a pool of spare cash. CDs and other cash investments, the top answer in Bankrate's 2013 and 2014 surveys, came in second at 23 percent.

What's the best investment option for your spare cash? | Ribbons Â© SiuWing/Shutterstock.com; Money Â© Bennyartist/Shutterstock.com

Wall Street generated little interest -- only 17 percent said they'd buy stocks -- even though stocks have been a relatively strong investment recently. The Standard & Poor'sÂ 500 index jumped 7.7 percent year over year from mid-July.

"We're not seeing the bunker mentality from individual investors to the same extent of the past few years," says Greg McBride, CFA, Bankrate's chief financial analyst. "But the preference for real estate over, say, the stock market, does beg the question of whether or not Americans are again viewing residential housing as a golden ticket."

Gold and other precious metals followed at 14 percent, and bonds, with yields that have hovered near historical lows in the past year, came in last at 5 percent.

Bankrate's survey was based on a national telephone poll conducted between July 9 and 12. It has a margin of error of 3.6 percentage points.

Housing on the rise

Americans are likely encouraged by recent indicators showing the housing market's strength. In May, sales of new homes grew 2.2 percent to the highest level in seven years, and April's figures increased 8.1 percent from March, according to the U.S. Census. Buoyed by demand for single-family homes, existing-home sales also rose 5.1 percent in May, recording a 9.2 percent year-over-year gain, according to the National Association of Realtors.

Home values are also rising. S&P/Case-Shiller's latest measurement of national home prices shows a 4.2 percent year-over-year gain from March to April. Since February 2012, when the index bottomed, prices have increased 26.8 percent.

Investment preferences by demographics

Bankrate's FSI survey broke down which groups preferred each investment by varying characteristics. For instance:

Those living in the West or in urban areas showed a tendency toward real estate investments, at 35 percent and 31 percent, respectively. Midwesterners, though, preferred cash and stocks over real estate. People living in the South preferred real estate and cash investments.
Age can be a defining characteristic. The youngest group, those between 18 and 29, had the highest preference for cash, at 32 percent, while people between 30 and 49 favored real estate more than any other group, at 32 percent.
By income level: Those bringing home over $75,000 a year were the most likely to prefer the stock market, with 28 percent responding that they'd favor stocks over other investments. Americans in the lowest income bracket, making less than $30,000, were the most likely to trust cash investments. And 35 percent of those earning between $30,000 and $49,999 were the most likely to choose real estate over the other options.
Risk tolerance increases with more education. College grads are more likely to invest in stocks (29 percent) than any other education group.

What the experts say

Many financial planners say Americans shouldn't discount stocks when it comes to investing a little extra cash. David Mullins, wealth manager at David Mullins Wealth Management, pointed out that over 10 years the S&P 500 has generated a positive return 95 percent of the time. It has never produced a negative return in a 20-year period, he says.

"The thing stocks offer that the other investments don't are dividends," Mullins says. "Over time, the compounding and reinvestment of these dividends makes a strong case for stock market investing for any extra money you won't need for 10 years."

And what about real estate, Americans' most preferred investment option? Hank Mulvihill, principal of Mulvihill Asset Management, says that although real estate can be profitable over the long term, it's not as easy to turn into cash as other investments. Instead, he prefers a portfolio of bonds and high-quality, dividend-paying stocks for any money that isn't needed for 10 years. And Mulvihill doesn't think the other investment options in Bankrate's survey are worth considering.

"Cash is not going to become more valuable unless deflation sets in. CDs are bonds issued by banks, and pay insulting rates, so why bother?" he says. "Gold and silver are useless."

Financial comfort shaky

Despite the underlying optimism in real estate, Americans' financial security slipped in July, with the FSI hitting its second-lowest reading this year.

When it came to their jobs, 22 percent said they felt "more secure" compared with how they felt a year ago, and 14 percent said they felt "less secure." While still positive, it's a weaker response overall. Last month, 29 percent of those surveyed said they felt "more secure" about their jobs, compared with 9 percent who said they felt "less secure."

They were also concerned about their level of savings. When asked about the money they'd socked away, 29 percent said they were "less comfortable" with their level of savings compared with a year ago. Only 18 percent said they were "more comfortable."

Time Saving Hacks For Part-Time Real Estate Investors

1. Go In With A Plan

The concept of a business plan is anything but new, and far from revolutionary. However, the fact of the matter remains: there is nothing else that will save your business more time and money than a streamlined business plan. As a part-time real estate investor, the first thing you need to do is establish a systems oriented business model specifically designed to attain the goals you have set for yourself. Menial, non-revenue producing tasks will be eliminated from your daily routine, making productivity habitual. Remember, the idea is to always be moving forward. If you can eliminate irrelevant tasks before they even show up, you are already ahead of the part time crowd.

Investing in real estate part time is not unlike any other business: it takes self-discipline. Hard work comes with the territory, but it is your discipline that will set you apart from the rest. That said, it has never been more important to have a workable business strategy to stick to until your goals have been met. A proper business plan will work to your strengths and keep you on track. The second you stray from your predetermined plan, you will be wasting time: the one thing part-time investors can't afford to lose.

In creating a business plan, there are 11 basic components you will want to consider:

Mission Statement: Clearly identify the company's long-term mission. Be as concise as possible, and include verbiage that promotes growth. Focus on what you want to accomplish, not how you are going to accomplish it.
Key Players: Identify who the CEO is, and any other key team members. Include their track records and years of experience.
Market Summary: Summarize your particular housing market. Identify past, present and future performance. Each indicator can point out opportunities for your company.
Opportunities: Identify problems consumers have had issues with, and define the nature of service opportunities created by said problems.
Business Concept: Summarize the key technology, concept, or strategy on which your business is based.
Competition: Familiarize yourself with local competition and the advantages each has over each other.
Goals & Objectives: List out your goals for the next five-years. State specific, measurable objectives for said goals. Include both market-share objectives and revenue objectives.
Financial Plan: Outline a financial plan to meet your five-year goals. Include both a financial model and price assumptions for your specific market. You will want to make sure you highlight expected annual sales and profits.
Resources: Identify the resources your company will need to get started: personnel, technology, finances, distribution, promotion, products and services.
Risk V.S. Reward: Weigh alleged risks versus the potential rewards in your specific market.
Key Issues: Identify issues that may present themselves in the near and long-term future.

Implementing a business plan will not only save you time and money, but also establish a solid foundation to build the rest of your business on. With a sound plan in place, you are free to grow as much as your aspirations will permit. Set aside one day to make a business plan, and it will provide you with a road map to the future. Reference it whenever you hit a roadblock, and it will point you in the right direction without wasting time.

2. Hire An Effective Real Estate Team

Part-time real estate investors are strapped with an inherent disadvantage to those investing full time the minute they decide pursue a career in real estate: they simply can't invest the same amount of hours. Fortunately, for the sake of the part-time investor, there is a rather easy solution: hire an effective real estate team. Teaming up with the right people to invest in real estate is a rather elegant solution to a common problem. Think about it; teaming up with someone else can essentially double your capacity to invest in real estate. An entire team, for that matter, can take your business to the next level.

Before you can even consider the addition of a business partner, you must conduct a self-evaluation. Understanding your current position as a real estate investor, in association with your tangible skills, will ultimately delineate between the characteristics you require out of a partner. Your goal is to find someone that compliments your strengths and mitigates your weaknesses. You must conduct an honest self-evaluation in which you assess your own strengths and weaknesses with a critical and impartial eye. Doing so will reveal an unbiased view of yourself that you may not have been aware of. As a part-time real estate investor, it may be in your best interest to team up with someone who can invest full time. That way, your business will not be relegated to the back-burner Monday through Friday.

The partner you choose can greatly influence the profitability of your company and the future it has. This is not a decision to be taken lightly. Choosing a work partner is not the same as getting an opinion on a deal from someone. A partner has a vested interest in your success and may not do things the same way as you – which is not necessarily a bad thing. With any partnership, the rewards must be greater than working on your own.

Outside of a partner, there are more ways to utilize the help of others. As a part-time real estate investor, it is entirely possible to enlist the services of a virtual assistant (VA). For a minimal fee, a VA can take on monotonous work that would otherwise remove you from profit-producing tasks. The time they save you can be spent on more important things. Again, just as you would with a partner, make sure the work you have a VA do is worth the free time it results in. If you do nothing with the time they save you, it isn't worth it. It is the newly freed up time that is what is important. Use it to your advantage and make things happen.

In reality, working with a partner does not save you time: it maximizes it. You will be getting more done in a shorter period of time. It is the time left over that will be worthwhile.

Investing in real estate, on top of working a nine-to-five, is by no means an easy undertaking. It requires a lot of hard work and dedication. There will certainly be very high points, and possible very low ones as well. However, for those that are dedicated to the craft, it is well worth it. Fortunately, there are some time hacks to make things a little easier on your part. If you learn to maximize the time given to you as a part-time investor, you will certainly find it easier to balance a real estate business with a subsequent career.

For more information on time hacks for part time real estate investing, keep an eye out for part two of our series.

How to Get Started in Real Estate Investing | Zillow Blog

Posted: 30 Apr 2015 02:37 PM PDT

Tips & Advice / story / By Jennifer Riner on 30 Apr 2015

There's no reason amateur real estate investors can't profit from small, individual property purchases. With home values currently rising 3.9 percent year-over-year, and expected to rise another 2.6 percent over the next year, why not allocate some of your savings toward real estate?

To get started off on the right foot, you'll need to make some decisions. Follow these steps prior to entering the real estate market.

Assess your current finances

Typically, financial professionals advise buyers put down at least 20 percent of a home's purchase price. But to avoid being responsible for two mortgages, many investors wait until they can pay for real estate outright. Obviously this requires a large savings, but to skip the lender and avoid interest rates you might opt for a foreclosure listed below the local market median.

If you do need a mortgage, you might consider living in your investment property to take advantage of owner-occupant rates. You don't have to live there forever, either. Lenders typically require just one year of residency to lock in the lower rate for the remainder of the mortgage. Owner-occupied interest rates are much more favorable than secondary home or rental property loans.

For those fortunate enough to purchase multiple income properties simultaneously, it's important to choose the right financing.

"We recommend our clients leverage their investment capital using cheap 30-year fixed-rate mortgages and buy as many income-producing properties as possible. This is how they accelerate their wealth-building with our turnkey properties," says Marco Santarelli of Norada Real Estate Investments.

Determine the potential cash flow

House flipping shows can make quick profits look easy. Typically, most homeowners don't profit when they sell shortly after closing. Of course, a major renovation on a flipped home increases the potential for short-term profit, but such extensive upgrades are going to cost a lot of money. Unless you're capable or experienced in large-scale home improvements, don't assume you can flip a house by yourself to benefit immediately.

Renting out the property, on the other hand, is more of a long-term strategy. Pricing requires some serious calculations to attract the largest number of possible tenants, while still covering the mortgage and homeownership costs. Although you'll aim for profit in the beginning, the real money usually flows in after the mortgage is paid.

"When I calculated my potential cash flow from renting out my house I started with Zillow," says Andy Prescott of Art of Being Cheap. "I looked at Zillow's rental estimate to see how much income I could expect. Since I was renting out the home I was already living in, I knew exactly what my mortgage, insurance and tax payments would be, and had a pretty good idea how much I would spend on repairs. So I subtracted all my expected payments from my expected income to get my expected cash flow. If that number had been close to zero, I would have been nervous about unexpected expenses, but since I had a few hundred dollars cushion I knew renting my home out would work out well," Prescott says.

Today's rental market is notoriously expensive, and competition among lessees is high. Even if you're not looking to be a landlord long-term, it could be financially wise to rent out your unit at least until median sale prices in the region peak.

Decide on your investment type

Many investors default to considering individual direct ownership as their only way to profit from real estate. However, partnerships (both close and limited) and publicly-traded investment trusts are designed to help investors who might not have the time, or the skills, to run real estate investments on their own. Partnerships can benefit individuals with similar investment interests who aren't quite ready to dive in solo. Real estate investment trusts (REITs), on the other hand, enable investors to fund multiple projects simultaneously without the hassle of day-to-day management.

"REITs behave in a certain respect like stocks (potential for capital appreciation/loss) and in certain respects like bonds (high levels of current income)," says Rich Ellinger of Wealthminder. "These somewhat unique properties, combined with the ability to raise rents on the underlying properties in inflationary times, mean that REITs behave a little differently than other types of investments. Although subject to economic fluctuation, REITs have performed well in the past few decades. Over the past 20 years, REITs have appreciated approximately 13 percent per year — the top among all equity classes," Ellinger says.

Unsurprisingly, your financial capabilities, estimated profit margins and choice of investment are all interconnected. Whether you're starting out with $10,000 or a million, staying informed in the real estate industry — even as a passive investor — is a key to success.

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Jennifer Riner

Jennifer Riner writes about rentals, home improvement and design for Zillow Blog.

Real Estate Investing

Thursday, 13 August 2015