It’s amazing to me how investors and realtors feel like their “golden property” investments will never crash. Many argue that, over the long run, most investments in real estate usually pan out. This was the guidepost, until 2008! In addition, one cannot escape outside factors, such as excessive speculation, competing investment classes, political factors, and bad timing.
Want to talk about bad timing? Let me tell you about my first home purchase.
Boca Raton, Florida, the home of the rich and famous…
A perfect place to buy a new house. Gated community, high-end prices, insulated from economic downturn. In 1984, this was the home of a major IBM plant. Shortly after I bought my first house, IBM decided to close the plant and relocate 40,000 families to Austin, Texas. You guessed it, the market became flooded with homes and the prices dropped literally by 90%. No problem, I am not moving, so Ill ride it out!
Life goes on. I meet a girl (from Texas). Love blooms. Florida all of a sudden doesn’t hold the same shine to a newly married man, after 10 years of debauchery. My bride convinces me that Texas is the place to live and start a new future and naturally, Austin has got to be it. So I get to buy the top of the market twice!
Real estate in a portfolio is good—but I don’t believe it’s the cure for all ills!
I know it’s the American Dream and, of course, you want to own the property you live in. However, when it comes to investment property, once must be a realistic.
Unless you are a developer, and taking raw land and transforming it, there is virtually no real estate transaction that has ever yielded 10x in return. If it did, it would never achieve this in 5 to 10 years. The best one could realistically hope for is doubling their investment. The only comfort is that the property will not drop to zero (as long as the mortgage is being paid).
So how do you diversify outside of the traditional asset classes? We believe there are exceptional opportunities in private equity. This is where angel investors literally act as the funding source for new firms with revolutionary products, services, or solutions. Taking a company from infancy to fruition also gives a reward beyond just a monetary one. Just like watching a child grow, you know that you are directly responsible of your investment’s outcome.
This is why Grace Century is involved with start-ups. Like the real estate developer, we work with “raw land” to bring it to something of value. It’s true, start-ups are much riskier, but with timing and due-diligence we feel that a lot of the risk can be taken out. So if you’re wondering why others continue to build wealth (while you are just plodding along), you’re probably hanging on to outmoded investment classes: gold, apartments, large cap stocks, and bonds.