Description
Transcript
I studied real estate investing for 1 full month and I hate it!
I don’t get the hype.
Why does everybody love it?
I don’t wanna invest in real estate.
This is controversial, and I’m going to explain everything I learned in this video.
But first, some background.
I am on a 6-month challenge to study money!
How to invest it and grow it!
I am doing this with my friend Yoni, who is the founder of eToro, the largest social investing platform in the world.
If you want to join us, just go to nas.io/money.
Everything I’m learning is available to you there for free!
Should we start?
Let’s start!
Alright, back to the challenge.
Okay, let’s talk about my dad.
He loves real estate.
He tells me to buy a house, buy an apartment, take out a loan.
Do whatever I need to do to just own real estate.
And you know what?
My dad is not wrong.
Real estate works – all my friends do it.
You buy a house, you probably get a stable income very year, house price goes up every year on average, and your investment is safe because you can live in it!
For the longest time, I believed in this too.
So I bought a house in Utah, an apartment in Sri Lanka, and another apartment in my hometown.
People invest in real estate for 3 main reasons:
One, everybody wants to own a house.
Second, they can make money from price appreciation.
And third, they can make money from rent.
But here is my issue with real estate investing, okay?
Number 1: it’s illiquid.
I invested over $600,000 in real estate, but that money – it’s stuck, I cannot get it back easily.
Number 2: hidden costs.
There are so many hidden maintenance costs that my dad doesn’t talk about.
Depending on where you buy, there is a US property tax every year and a maintenance cost every month.
You have to fix broken things, you have to find tenants, and you have to pay interest on the loan.
That’s why number 3: the returns.
The returns are meh.
If you look at historical data, the stock market went up buy an average of 10% every year.
Meanwhile, the average real estate returns once you account for everything is like 1% to 2%.
So, why do we invest in real estate?
The real estate sector is interesting, it provides diversification to your portfolio.
But, I still believe in real estate.
I really do.
That’s why, I was excited to learn about this, and I’m going to teach it to you.
It’s called the REIT: Real Estate Investment Trust.
It’s one of the most accessible ways to invest in real estate without buying an actual house and here is how it works:
An REIT company buys big real estate projects: offices, apartments, malls, lots of them.
Then they collect rent, lots of rent.
They do all the dirty, hardy work and by the end of the year they give you 90% of their rental income back to you!
It’s not by choice, it’s the law – they have to!
That’s why it’s called a Real Estate Investment Trust – REIT.
Investing in REITs provides the same exposure of investing in real estate of both fixed income through their dividends as well as capital appreciation of the REIT price itself, and it’s simpler, it’s liquid, and it’s managed by professionals.
Now, small investors can invest in real estate without having to spend $600,000 just like I did,
It’s as simple as investing in the stock market, but instead of buying Google stock, you can buy REIT stocks.
And these are the top 3 REIT stocks in the world.
Each one has a dividend from 1.9% to 3.3%.
This dividend, this is the rental income that is given back to the shareholders every year!
And the beauty of REIT stocks is that it’s very liquid.
You can buy and sell REIT stocks in minutes, not months.
And it’s hassle-free!
You don’t need to find tenants, you don’t need to fix broken doors – someone else does that for you.
But remember, this is not risk-free.
You still have to do your own research and decide which REIT stock is perfect for you.
Let me explain how you can do that.
There is one number you have to look at before you invest.
It’s called the price-to-book ratio.
It’s a simple calculation:
We take the value of the company and we divide it by the value of the houses and assets that the company owns.
And you want this number to be as close to 1 as possible.
If the number is below 1, then something is off.
Maybe the company has too much debt and you have to look into it.
If you think all of this is too risky, then you can invest in all real estate companies – multiple companies – and spread the risk,
Yeah, you can do that in real estate.
It’s called an ETF, and this one covers global real estate and this one covers US real estate.
Investing in REIT ETFs is just like investing in stock index ETFs.
Instead of you doing the analysis and picking stock or REIT one by one, you are able to invest in different ETF sectors.
Real estate is still a good investment especially if you’re looking to own the home you live in, but based on everything I learned, I’m not sure that buying is better than renting.
You should do your own math before you buy.
Next time your parents tell you you have to own a house, you can tell them that investing in REITs is simpler and gives you diversification to real estate.
It’s such a shame to have your money sit illiquid for decades in one building.
Your money, I believe, should work for you – not every decade, it should work for you every single day.
And that is my opinion on real estate.
See you next month for another video about money.
Did you like the background of this video?
This was shot at NasHouse.
I know, it’s real estate – we don’t own it, we rent it, just to be clear.
But… yeah!
This is our version of real estate and it’s rented and it’s beautiful!
See you next month.